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Broadway House : 68-74 Carter Lane, E.C. 

Translated from the French 
Lds Profits de Guerre d traders les Siecles 
By Geoffrey Sainsbury 

First puhluhed . 

. 1936 

Printed in Great Britain by T. and A. Constasle 
at the University Press, Edinburgh 





Julius Caesar— The feudal barons — Conquest of the New 
World— The spoils of the Conquistadors — Privateering — Tlie 
Condotticri — Wallenstein — Marlborough — The Napoleonic 
Wars— Wellington — Bismarck pleads for gi'atuities — Frank 
Stcinhart— Gratuities of the European War — Decline of 
military profits* 

CHAFrmi n.— iBE financiers 55 

Money and ■[)ovv(t— T lie Florentine hankers— jacques C<xnir 
— ’ilic j)ower of the buggers Foundation of the Bank of 
England —Manipulating th<i eurrcncy^ — 'ilic loans of the 
Landgrave^ of J l<‘ 8 s<‘-C'asseh--rhc war de.aHngs of Meyer 
Arnseiiel Roths(‘hild - d’h<^ hvti iTankfort hrotluTs — Financiers 
ih Napoleon— 'File Bourbon Restoration— 1 'he Rothschilds 
become pacifists-* Bleiehrodca— Count lIcTickcl— Wtir profits 
of tlus banks— b'inancing the i, European War — Morgan 
loans— llic State beeohics its own financier. 


llie early armourtTs — Krupp’s early difhcuitics — I'he 
SchneidtTs— Krupp’s overtures to Franco- — Bssen in full swixig 
—Amis in the Franco-Frussian War— Armament firms in the 
United Statcjs—Ycars of p<^ac;e' — Growing competition— Inter- 
nationalism of llu; arms trade— XYopaganda— Hie Great 
Powers in tlu^ arms industry— War profits in Central Europe— 
Hotchkiss— Boom in Italy— Mass production in England— 
Profits, of tiie U.S. Steel Corporation— Bctlileiicm Steel 
Corporation— Profits < 4 ' the chemical indushy : the Du Fonts 
-* Bic duariicai indirstry in Europo-^-Tiu' losses of Poutiloff 
and Skoda- 'R<, 'construction of Krupp’s— Posl-war depress 
sion-'- Adekc*rs^Arm*strong i ad.— bixpansion of Schneiders— 
Zaharoif and his disciples— Phreats of disamiament— The 
new pre-war period. 






Self-supporting armies — Supplies for maritime expeditions 
and regular armies — Carjaval and Medina — The Paris 
brothers — Supplies during the French Revolution — The rise of 
Ouvrard — Ouvrard’s fortunes fluctuate — Ouvrard and the 
Restoration — The American Civil War — “Shoddy aristo- 
cracy” — Transport profits — ^An army on a Cook’s Tour — 

The shipping boom in England — Profits of neutrals — War- 
time trade in Germany — ^Morgan’s monopoly — War million- 
aires in America — Total profits of the war. 


The nature of war speculation — Speculation in government 
stock— Francs and sterling— The July Revolution— Talley- 
rand as speculator — Bismarck accused of speculating— The 
Prussian General Staff— Baron von Holstein — Speculation in 
the European War— Wall Street fears peace— War boom and 
post-war crash. 


Three arguments— The movement for international control of 
arms— The movement for national control of arms— Govern- 
ment declarations — The campaign in America — ^The new 
conception — ^The evolution of war profits. 


. 302 

to the English Translation 

The problem of war profits is one of the most dis- 
cussed questions of the day. Indeed, at a time when 
the possibility of another war is generally admitted, 
and when countries are accordingly spending huge 
sums on rearmament, the gravity of the question can 
hardly be denied. Arc private profits from war to be 
considered just? Arc they to be tolerated on grounds 
of expediency? Or, on the other hand, are they to be 
ruthlessly suppressed as themselves providing one of 
the many factors which lead countries on to war? 

In all the great democratic countries governments 
have emphatically proclaimed their hostility to war 
profits. In America and France as well as in England 
legal or parliamentary commissions have been set up 
to study the question in one aspect or another. Some- 
times it is to determine the profits made by individuals 
during the last war, sometimes to determine those 
made by the armament firms in peace-time, some- 
times to consider the expediency of nationalizing the 
whole armament industry. In some countries, par- 
ticularly in the United States and France, laws of the 
utmost importance have been passed either to restrict 
the trade in war supplies or the profits derived from it. 

Although this question has aroused widespread 
interest, no general survey of the subject Iras, so far 
as I know, yet been undertaken. The present volume 
has been written to fulfil the need for one. Ranging 
through all historical times and over all countries, its 
aim is to present sulficicut material to enable the 




general reader to form an objective opinion. Natur- 
ally with so immense a field the material offered can 
be no more than a selection. For the more remote 
periods of history only a few typical examples are 
given, the bulk of the book being devoted to recent 

Ever since there have been wars there have been 
profits derived from them. Up to the opening of the 
nineteenth century the most important were those 
made by great military leaders, though wars also 
offered opportunities for financial and trading profits 
which were often very considerable. Then, during 
the nineteenth century the soldier gradually fell into 
the background, his place being taken by the manu- 
facturer of arms. In the minds of most people the 
latter still occupies the centre of the picture. But, 
important though he undoubtedly is, I am inclined 
to think that the attention bestowed on him is some- 
times exaggerated, too little being given to other forms 
of war profits. During the last war vast fortunes were 
made in trading in all sorts of war supplies, and also 
in speculation, and I have tried to show that the more 
indirect forms of war profits are of increasing im- 

Considering all the variations and complexities of 
war profits, it must not be expected that a historical 
movement will be uniform in its advance. Never- 
theless, the view is here set out that a very definite 
tendency has for a considerable time existed according 
to which war profits become more and more indirect. 
As a result of economic and technical developments 
as well as of the change in moral outlook on the sub- 
ject of war, direct profits from war are becoming 
increasingly difficult to realize. 

R. L. 

Paris, July 1936. 

Julius Caesar 

They started, nearly all of them, with nothing: 
country gentlemen, impecunious pages at Court, 
robust colonial soldiers, or revolutionary captains. 
Some had to make their way by means of amorous 
adventures or wealthy marriages till they reached the 
point where their talent won recognition. The great 
model they all followed was Julius Caesar, and he 
was their model in this particular too: he started 
with nothing. With less than nothing, one might 
say, for Plutarch has been indiscreet enough to let 
us know that the debts accumulated by the young 
Caesar amounted to 830 talents — about ^400,000 in 
modern English money * — ^when for the first time, 
he was given a high appointment, a governorship 
in Spain. 

So long as he was at home, distributing with both 
hands the money he borrowed to further his political 
ambitions, his creditors felt more or less at ease. For 
power brought wealth. That was a rule in Rome 
against which no one dared to protest except an 
obstinate few, like Cato of Utica. But away in a 

^ Throughout this book historical sums of money when converted 
into modern currency have been given in depreciated pounds. The 
author puts them into modern gold francs, and in translating his 
figures 1 have allowed 75 francs to the pound.-— Tr. 



restless colony, if something should happen to Caesar, 
the money would be lost for ever. That was certain. 

So when all was ready for the departure of the 
new Governor, his creditors started to make a row. 
They presented his I O U’s, due for payment long 
ago, and, as Caesar was still incapable of paying 
them, they abandoned threats and seized his baggage. 

It was a painful scene. At the very moment when 
the Governor was getting ready to leave the capital 
to take up his post, his whole personal outfit was 
seized. This was something that had never happened 
before, not even in the most troublous times of the 
Republic. But civil law did not bend before the most 
august dignitaries of Rome, and Caesar, at the outset 
of his career, dared not risk the use of force; the 
matter had to be settled by legal means. To avoid 
a pubhe scandal, Caesar’s patron, Crassus, the multi- 
millionaire, agreed to settle the most pressing claims 
and to give a guarantee to cover the rest. The 
money-lenders resigned themselves to this arrange- 
ment, and without further bother the young Governor 
could now depart with all his things. 

This incident strengthened his resolution to put an 
end to the precarious state of his finances, and, in 
the years which followed, the wealth of Spain allowed 
him to carry out his intention to the full. Straight 
away, he proceeded to conquer new territories, sub- 
jecting the regions which now constitute Galicia and 
Portugal. His governorship in Spain became a 
regime of exploitation of the first order. It is true 
that this treasure acquired in the West, could hardly 
compare with that acquired by Lucullus and Pompey 



during their expeditions in the East. Nevertheless, 
the business men of Rome were overjoyed by this 
sudden and unexpected influx of wealth, and showed 
the greatest enthusiasm for further colonial enterprise. 

Nor had Caesar’s soldiers anything to grumble 
about, for they got a good share of the spoils. And 
there was plenty over for the general. Caesar, though 
less grasping than many other Roman captains, found 
himself now liberated from all financial cares, and 
his old creditors were happy too. His first great 
military exploit not only brought him fame, but made 
him a rich man, as a general was expected to be. 

The Spanish expedition was, however, only a pro- 
logue. The Gallic wars reaped a far richer harvest. 
In those countries where there was not much to 
take, as in Britain or in the German forests, Caesar 
did not stay long. But with all the more rigour did 
he set out to subject and exploit the flourishing land 
of Gaul. The tribes between the Rhone and the 
Rhine had to pay an annual tribute of 40 million 
sersterces, equivalent to some ;^8oo,ooo. Apart from 
the eapture of strongholds, objects of gold and silver 
in surprising quantity were continually falling into the 
hands of the Romans. 

It is not known how much he kept for himself, but 
Caesar, with that largeness which characterized him 
all his life, was able to scatter money on all sides. 
Paulus, the Consul, received 1500 talents, which 
enabled him to build a great basilica. Curio, the 
people’s Tribune, who was heavily in debt, was 
saved from' the hands of his creditors by a gift of 
250 talents. The men whom Pompey had lent to 


Caesar for his last campaign in Gaul, were given 
about 500 talents as a parting gift. From these few 
known figures it may be deduced that during ten 
years of warfare Caesar’s fortune grew from —830 to 
-[-2250 talents, that is to say by more than 3000 
talents, equivalent to about £ 1 ,^ 00 , 000 , and this at 
a time when Crassus, with a fortune of 7100 talents, 
was considered the richest man in Rome. 

The manner in which Julius Caesar straightened 
out his affairs was in no way peculiar to him. In 
the military history of the world, from its beginnings 
right down to the nineteenth century, it was the 
common thing for the commander of an army, at 
any rate the victorious one, to make a personal profit 
from the war. Certainly, in the case of defeat, the 
generals of bygone times ran a greater risk than 
those of to-day. Their persons were almost as exposed 
to danger as those of the common soldiers. More- 
over, when beaten, they might expect exile and the 
confiscation of all their property, a fate which as a 
rule only threatens monarchs in the twentieth century. 

The pecuniary opportunities and risks of military 
chiefs vary in their legal forms, but hardly vary in 
their substance. In antiquity, particularly in Rome, 
they knew already all the methods which were to 
serve later to “gild” military glory. To the con- 
queror, not only the palm and the laurel, but also 
material benefits. If in the course of the war he 
had not filled his pockets with gold, silver and precious 
stones, it was his acknowledged right on his return 
to receive a considerable part of the booty. And 
besides these gifts of moveable property, he was given 



the ownership or the use of land. Generals who 
met with exceptional success were rewarded by entire 
provinces ; those in subordinate command received 
proportionally less, but often they, too, acquired a 
fortune sufficient to enable them to retire still young 
to lead a life of comfort and security. Lucrative 
civil posts, sinecures in government departments or 
in the economic sphere — of which some were com- 
parable to the directorships occupied to-day by retired 
generals and admirals — these complete the list of 
benefits accruing to military commanders. 

The Feudal Barons 

The more primitive nature of economic life during 
the Middle Ages deprived war profits of much of 
their diversity. On the other hand, the notion of a 
warrior caste tended to become more and more 
closely linked with that of landed property. The 
cause of this was twofold. 

Whoever received a fief from his overlord owed 
him military service, particularly on horse. The 
vassal stood the cost of his equipment and generally 
had to provide provisions for three months. This 
connection between the concession of land and 
military service lay at the base of the system of 
fiefs which dominated the Middle Ages and for 
several centuries secured for the feudal nobility their 
economic ascendancy. 

But this was only one aspect of war economy, and 
certainly the less attractive to the warriors them- 
selves. It is true they received their remuneration 


in advance in the form of land, as for example in 
the Frankish kingdom under Pepin the Short, when 
land was distributed which had belonged to the 
Church. But all the same, war itself was bad business 
for the feudal vassals who were the first to bear the 
cost, and in feudal history there is abundant evidence 
that the vassals, particularly the richer ones who 
could lead a life of ease at home, did not always 
come forward eagerly when the suzerain called them 
up for a new campaign. Often the great overlords 
would need all their powers of persuasion to get their 
faithful vassals to mobilize. Sometimes they promised 
the horsemen regular pay. But money was often 
lacking, nor could it everywhere be used. The 
prospect of spoils in the form of moveable property 
was not sufficiently tempting, especially if the ex- 
pedition was to distant parts. The suzerain’s strongest 
trump was to promise his vassals huge tracts of land 
in the country to be conquered, where they in turn 
would become great feudal lords. 

A characteristic example of this was the English 
campaign of William the Conqueror which brought 
its individual participants immense gain. The vassals 
of the Duke of Normandy, the most cultivated nobles 
in the North of Europe, refused at first to follow him 
in a campaign overseas, and in the face of this 
attitude of his vassals, William made each of them a 
personal promise of land.^ 

After the conquest, William fulfilled his promises 

^ William of Malmesbury, De gestis ngvm Anglorum. Ed. William 
Stubbs. London 1889, P* ^ 299 - 

Augustin Thierry, Histoire de la conquite de PAngklerre par ks Marmnds. 
Paris 1867, p. 126. 



without stint. First of all, of course, he looked after 
himself. Towards the end of his life his annual 
revenue amounted to ^^400,000. It was not till five 
centuries later that Queen Elizabeth succeeded in 
exceeding this figure, but in pounds whose pur- 
chasing power had considerably diminished. This 
enormous revenue of the King was derived, apart 
from contributions of all sorts, from the produce of 
1432 estates which he reserved to himself in various 
parts of the country. 

Next to the King came the Royal Family. Odon, 
William’s brother, considered to be, after the King, 
the richest man in the country, received 450 par- 
ticularly rich estates; another brother, Robert, got 
973 manors. Nor had William’s subordinates any 
cause for complaint. It is true that any hope of 
political independence disappeared in the autocratic 
and highly centralized regime that William set up 
in England. But, from the economic point of view, 
his companions in arms were well rewarded. Alan 
Fergant received 442 fiefs, Gillaume de Warenne 
298, Geoffroy 280, Richard de Clare 171, and so on, 
as one may read in great detail in the Domesday 

To make such lands remunerative, and also to be 
able to perform the increased military service which 
they now owed their sovereign, the feudal barons let 
off the greater part of their property to secondary 
vassals, who were obliged to serve, not only in the 
wars of the King, but also in the private wars of their 
immediate overlords. But from this moment they 
encountered the same difficulty as the King had had 


with them. To drag their tenants from their lands 
and get them into battle, they had to give them 
economic guarantees which became more and more 

All the same, the feudal barons managed to main- 
tain their wealth and their social status for three 
centuries. Thereafter, little by little, they declined. 
The organization of an army equipped by the King 
and the development of new technique in arms were 
the chief causes, the feudal lords becoming useless 
from a military point of view. Even to-day a twentieth 
of the high English nobility claim descent from 
the military nobility of the fifteenth century and 
earlier. In reality, there are certainly less, as ancient 
titles of nobility have often lapsed and then at a 
later date been conferred on families who were being 
newly ennobled. The names of these conquerors 
have been more lasting than the fortunes their con- 
quests brought them. 

The magnificence of feudal chivalry came to an 
end in France at about the same time as it did in 
England. In France, however, the ancient families 
with their feudal estates survived better. At the 
beginning of the French Revolution, 1500 families, 
less, however, than a tenth of the total nobility, 
could trace their origin to “immemorial” nobility, 
that is to the “race” of medieval times. 

Longer than in the West, the old warlike nobility 
of Central and Eastern Europe maintained its pre- 
dominance based on the profits of war. But there, 
too, a radical economic change took place towards 
the end of the fifteenth century. For a little time 


longer the feudal lords, no longer of military use, 
endeavoured to replace the profits of war by attacking 
and spoiling the merchants and travellers on the roads. 
On these practices being suppressed by centralized 
authority, the squires whose lands lay beyond the 
Elbe set out to increase their scope for exploitation 
by reducing the local peasants to servitude and little 
by little dispossessing them. 

Conquest of the New World 

Towards the end of the fifteenth century and during 
the early part of the sixteenth, just at that period 
when throughout the greater part of Europe the 
feudal order was disappearing, and with it the 
medieval form of war profit, and when, with the 
organization of large paid armies, war itself under- 
went a complete financial and economic change, a 
new epoch of war-like enterprise opened in the South- 
west of Europe which brought to military leaders the 
chances of inestimable gain. The great expeditions 
of the Spanish and Portuguese explorers to which 
we now turn, had from the first a wholly martial 
character, even though at first very small military 
units were involved. 

With these daring expeditions, as with the Crusades, 
the motives were religious and metaphysical as much 
as they were material and political. But material 
considerations soon took a predominant place in the 
preparation and execution of these overseas cam- 
paigns. In their military aims and methods they 
reverted to the ideas of primitive times. All was 



permitted: acts of violence and pillage in all their 
forms, even to the complete extermination of those 
that had been brutally attacked. If it had been 
technically possible, the conquistadors would cer- 
tainly have put the whole New World on their ships 
to carry it to Europe. But they did their best. They 
carried off everything they could which was portable 
and seemed of any value whatsoever. 

From the point of view of their financial organiza- 
tion, these primitive campaigns, having no aim but 
plunder, were already stamped with modern capital- 
ist ideas. The cost of fitting out the ships of the con- 
quistadors was carefully calculated beforehand, as 
well as the expediency of investing such substantial 
sums in such doubtful enterprises. The kings and 
princes, who were the first to finance these ventures, 
drew up carefully framed contracts with their brave 
captains long before the date of their departure. The 
share was fixed which in the case of success should 
go to the ruler, as well as how much of the booty the 
leader of the expedition might claim. 

Emmanuel, the great King of Portugal, reserved 
for himself a fifth of the total spoils. The Spanish 
kings, too, demanded their “quinto” of the precious 
metals carried off by the conquerors. Later on when, 
besides rulers, private financiers took a hand in 
organizing expeditions, the subsequent settlement — 
that is to say the division of the spoils — became more 
complicated. More and more these enterprises 
acquired the character of modem companies. The 
captain in charge of the expedition (who in the new 
countries became also the first governor) generally 



reserved for himself a substantial part of the 

It was perhaps due to Christopher Columbus that 
from the start such a high standard of profit was 
established for nautical and military leaders of the 
age of discovery. We know how this man, possessed 
by ambition and avidity, discussed for years with the 
kings of Spain and Portugal his project of finding a 
western route to India, and how his exorbitant per- 
sonal demands caused negotiations to fall through. 
His calculations show a system of exploitation bril- 
liantly worked out, and he was not going to content 
himself with a small return. Accordingly, he claimed, 
as well as all sorts of titles and dignities, a tenth of all 
receipts which the Crown might draw from his dis- 
coveries and an eighth of any State monopolies which 
might be established in the new lands. 

As a matter of fact, the immediate results of the 
expeditions of Columbus were far more modest. The 
islands and that part of the American coast which 
he was the first to explore were more valuable for 
colonization than for any ready plunder. This 
caused disappointment; some maintained that he 
had been guilty of irregularities in his accounts with 
the Crown and he fell into disgrace. Like other 
lesser explorers who followed him, Columbus aimed 
at exploiting war on a grand scale; he died, how- 
ever, without leaving a fortune. 

The men who, following in his footsteps, achieved 
the conquest of the New World, secured handsomely 
what he had missed. In contrast to the campaigns 
of the Middle Ages, the distribution of lands played 



here but a secondary part. It was not real property 
which was of the first importance, but chattels, 
valuables, all the plunder that could be seized and 
carried off. Silver and gold: those were the spoils 
for which new expeditions were continually furnished 
out. The number of those who failed to win it were 
not considerable. But some there were. In vain 
Hernando de Soto, Governor of Cuba, undertook an 
expedition full of dire calamities in the Mississippi 
valley, and Vasquez de Coronado, starting from 
Mexico, pushed far into North America, with no 
reward. Again, Jacques Cartier, the great French 
navigator, sent by Francis I, discovered what is now 
Canada. But he did not find the legendary land of 
gold for which he had set out. 

The Spoils of the Conquistadors 

But those whom fortune favoured grew rich beyond 
measure. Those who achieved the greatest success 
were Hernando Cortes in Mexico and Francisco 
Pizarro in Peru. Their expeditions had quite defin- 
itely a military character. They were true colonial 
generals in the infancy of colonial imperialism. 
During his famous expedition to the centre of Mexico, 
the army of Cortes consisted of 400 Spaniards, with 
15 horses and 7 pieces of artillery, 1300 armed Indians, 
and 1000 porters. Later on, he received considerable 
reinforcements from tribes hostile to the Aztecs and 
gradually his forces swelled to 7000 men. 

The treasure in gold which the Aztec prince, Monte- 
zuma, offered spontaneously to Cortes as his army 



approached, amounted to iQzfioo pesos, which is more 
than 200,000 ducats, without counting jewels of less 
importance to the total value of 500,000 ducatsA 
But this was only the start, and Cortes was by no 
means satisfied with that. The sack of the capital 
brought him further plunder worth 131,000 pesos. 
In the course of the campaign a large part of the 
treasures taken were lost when a bridge collapsed, 
but even so the total booty seems to have exceeded 
half a million golden pesos. Cortes returned to Spain, 
bringing officially 200,000 pesos and a great hoard of 
silver, and his conduct was considered at Court to 
have been perfectly correct. However, his deputy, 
Salazar, and with him some subordinates, were 
arrested for having kept back for themselves 25,000 
to 30,000 pesos each. 

Nevertheless, the profit realized by Cortes in 
Mexico did not reach the treasure which in a few 
years Pizarro accumulated in Peru during his con- 
quest of the Incas. Francesco Pizarro was an experi- 
enced soldier who had seen many battles in Spanish 
colonial wars, and he prudently began with a 
scouting expedition to make sure of the Incas’ wealth. 
He then returned to Europe, and his report was so 
inviting that the Emperor, Charles V, as well as the 
Sevillian bankers,® provided all the means necessary 
to arm a real military expedition. Here, too, the 
nucleus of white troops was only small, hardly 200 
men. Just as in Mexico, the rest of the army, which 
was to undertake a hard campaign in high moun- 

^ Prescott, Conquest of Mexico, 

2 Hans Wantoch, Millionaires, Paris 1933, p. 38, 



tains, was formed of native troops. It was thus, in 
composition, a typical colonial army. Pizarro was, 
however, peculiar in regarding this campaign which 
promised to be very lucrative as a kind of family 
enterprise. He took with him a large number of 
relatives to participate in the plunder. 

In his exploitation of the country’s wealth, Pizarro 
used methods still harsher than those used by Cortes 
in the Aztec kingdom. Imprisonment of notables, 
the extortion of ransom, then murder and pillage — 
that was the procedure. Having imprisoned the 
Inca prince Atahualpa, the Spanish general de- 
manded as the price of his liberation a room full of 
gold, the room to be three metres high, six metres 
wide and seven metres long. The ransom, valued at 

I, 300,000 pesos, was paid, as well as a supplementary 
sum in silver. The precious metals were subsequently 
shipped to Spain, where they were regarded as a 
conqueror’s legitimate profit. 

Spanish archives furnish us with precise infor- 
mation concerning the manner in which Pizarro and 
his companions divided this immense ransom. The 
gobemador, Francisco Pizarro, received a share of the 
gold valued at 57,000 pesos, his brother, Hernando, 
31,000, while another member of the family got 

II, 000. Two other subordinate chiefs divided 25,000 
pesos, and 48 horsemen were rewarded with 9000 each. 
Infantrymen were entitled to about 4000 per head. 
Silver was distributed in the same proportion! Of 
the whole, the conquerors received 80%. The 
remaining 20% went to the Crown, and it seems that 
the latter was under obligation to satisjfy the claims 


of the private financiers who helped to fit out the 

This ransom — a ransom in name only, for it did 
not save the life of the Inca prince — ^was nevertheless 
only a part of the plunder of this war. The sack of 
the capital and the continued extortions inflicted on 
the population brought a tribute to the Spaniards, 
whose total is estimated at ^^6,750, 000 in modern 
currency. When the gold of the Incas began to give 
out, the Spaniards turned, as they had previously 
done in Mexico, to the country’s silver mines. The 
youngest brother of Francisco, Gonzalez Pizarro, 
undertook to work the mines of Potosi, which from 
now on, for a whole century, became Spain’s most 
important source of silver. 


The convoys which every year transported the 
produce of the American silver mines — in good years 
they carried 10 to 15 million ducats’ worth of the 
precious metal — were the favourite object of attack. 
In the sixteenth and seventeenth centuries piracy, 
privateering and regular warfare overlapped to such 
an extent throughout the wars which were to decide 
the mastery of the seas, that one must consider the 
privateers, at all events those provided with letters of 
marque and royal privileges, as the recipients of 
true war profits. Whereas the feudal bandits of the 
fifteenth and sixteenth centxrries were the product of 
the decay of a warrior caste that was destined to 
disappear, the privateers at sea were the pioneers of 


the modern naval powers and often constituted the 
auxiliary forces of proper navies. In its economic 
aims and financial methods privateering is hardly to 
be distinguished from those expeditions of the age 
of discovery whose object was the conquest of new 

With the progress of capitalization, private finan- 
ciers took an increasingly important part in fitting 
out the vessels and consequently also in the sub- 
sequent proceeds. For this purpose proper companies 
of shareholders were formed, though royalty con- 
tinued to be largely involved financially. The for- 
midable plunder brought back by Francis Drake 
from his marauding expedition on the coast of South 
America from 1577 and 1580, was sufficient for the 
shipowners to get practically 100% on the money 
they had sunk in the venture. The surplus, which 
was very considerable, went to Queen Elizabeth, and 
Drake was not only handsomely remunerated for his 
services, but was also knighted by the Queen. 

In France at the time of Louis XIV, privateering 
enjoyed an extraordinary prosperity, and the Court 
eagerly took part in these enterprises, at once glorious 
and lucrative. Madame de Montespan set the 
courtiers a brilliant example in fitting out three ships 
herself. The great colonial companies of the seven- 
teenth century were not only themselves the victims 
of privateering, but they did not hesitate to use the 
same means to improve their balance sheets. Be- 
tween 1623 and 1636, the Dutch East India Company 
captured no less than 514 ships, and thereby made 
more than her fleet had cost her to build. 



As commercial development proceeded, however, 
the privateers were gradually left behind. Their pro- 
fession retained its prestige but it was not very paying, 
earning hardly more than regular military service. 
They and their men received from the shipowners a 
small regular salary and only a modest share in the 
spoils. Accounts kept at a French port in the time 
of Louis XIV under strict official supervision gives 
us the following details. First of all, a considerable 
part of the proceeds of an expedition went to meet 
legal costs, harbour dues, warehousing, selling, etc. 
Next 10% went to the Admiral of France, that is, 
nominally at least, to the State. The Due de Chaulnes, 
Admiral and Governor of Britanny, received in the 
year 1692 alone the sum of 9,000,000 livres?- After 
these deductions had been made, the remainder was 
divided between the shipowners and the personnel 
of the expedition, the former getting two-thirds. 
Distribution to the men was on the following scale : 
to the ordinary soldier i share, to the sailor 2, to the 
carpenter 4, to the surgeon 8, to the bursar 12, to the 
lieutenant i6, and lastly to the captain 24. 

The big ships employed in this trade often carried 
300 men and more, in which case the captain would 
not receive more than 2 or 3% of the prize. Later, 
as privateering declined, the prospects of those en- 
gaged in it became still worse. Thus Angenard, one 
of the last privateers of St. Malo, operating at the 
period of the Napoleonic wars, complained of having 
delivered to his masters more than 2,000,000 francs 
in the space of twenty days and having received for 

^ Andrd Savignon, Saint-Malo nid de Corsaires. Paris 1931, p. 95. 



himself no more than 34,000 francs. The crews 
suffered above all from the increasingly bureaucratic 
procedure which delayed interminably the settlement 
of accounts. Under Louis Philippe, some old sailors 
came at last to receive their share of prizes taken 
under the First Empire, thirty years before.^ 

As a result of the delays in settlement and the 
relatively modest renumeration, many privateers 
sought compensation in other ways. Some had re- 
course to open piracy ; some landed their plunder in 
the course of their voyage at some safe and secret 
port; there were even those who burnt their ships 
on distant coasts and retired with their captured 
treasure to lead a quiet life abroad. A buen retiro 
popular with old privateers and pirates about 1700 
was provided by the young English colonies of 
North America. A certain number of them were 
to be foimd at this period at Boston, where they 
enjoyed a comfortable competency and perfect 

It seems, however, that few among these pro- 
fessional exploiters of war succeeded in amassing 
really big fortunes. These were chiefly those who 
were in a position to finance their expeditions them- 
selves without recourse to financiers who would claim 
the greater part of the spoils. And for these in- 
dependent adventurers, what mattered was not so 
much their martial courage as the soundness of their 
business calculations when they fitted out their ex- 
peditions. A typical career was that of Duguay- 
Trouin, the most famous privateer of St. Malo, 
^ Henri Male, Corsaires et Filibustiers, Paris 1932, p. 30. 


revered still to-day as one of the great nautical heroes 
of France. 

Duguay-Trouin came of an old family of privateers 
and shipowners which in the course of several genera- 
tions had amassed a considerable fortune. The young 
Duguay-Trouin was intended at first for the priest- 
hood, but he soon returned to the trade of his fathers 
and in his seventeenth year he was captain of a 
privateer owned by the family. He succeeded in 
capturing some valuable prizes, but he was possessed 
by the ambition to fit out more and more ships and 
he finally pursued his prey accompanied by veritable 
squadrons. To satisfy this ambition he was obliged 
to borrow money in increasingly large amounts. 
Though capturing in the course of twenty years 
320 ships and cargoes worth millions of francs, he 
was so deeply in debt as a result of long and costly 
expeditions, including a few failures, that he had 
hardly enough to live on. 

In this sad condition he conceived a gigantic 
scheme, important also from a political point of view : 
he wanted to undertake a military expedition to 
Brazil to punish the Portuguese who had allied them- 
selves with France’s enemies, and at the same time 
to revenge the defeat of a French squadron which 
had recently taken place on the Brazilian coast. 
He submitted his plans to the King. Louis XIV 
was quite ready to give him his paternal blessing, 
but, as the exchequer was empty, not the one or 
two million livres needed for the expedition. So 
Duguay-Trouin decided to undertake the venture at 
his own risk. He formed an association with six rich 



bourgeois of his native town, and the seven “directors” 
were able between them to put up a sum of more 
than 1 1 million livres. 

This enabled activities to start, and in several 
French ports ships were simultaneously fitted out. 
Finally, in 1711, Duguay-Trouin was sailing South- 
West at the head of a powerful fleet. 17 big ships 
carrying 738 guns and 5864 men were under his 
command. Three months later he had already taken 
Rio de Janeiro in spite of its strong fortifications. 
The necessary sack of the town did not give the 
brilliant results which might have been expected. 
The Portuguese had been wise enough to remove 
their gold and silver beforehand. But Duguay- 
Trouin got over the difficulty. He declared himself 
ready to leave the town without burning it if a large 
indemnity was paid. The Portuguese governor agreed 
and the French fleet sailed off laden with treasure. 
Although during the voyage home several ships carsy- 
ing some 600,000 livres in gold and silver were lost 
with all hands, Duguay-Trouin nevertheless brought 
back plunder to the value of more than 5,000,000 
livres. The financiers of the expedition received a 
dividend of 92%, that is to say they practically 
doubled their capital. 

The victorious privateer was covered with honours 
by the Edng. Under Louis XV he received the highest 
military dignities. But in spite of all, Duguay-Trouin 
died without a fortune. On the other hand, his cousin, 
Alain Poree, who worked on a much more modest 
scale, and who incidentally was not over-scrupulous 
in his accounts, quickly became a millionaire. 



The Condottieri 

While private warfare at sea was increasingly 
hampered by red tape and by meticulous business 
accounts, on land the profession developed and be- 
came at once the most magnificent and the most 
brutal manifestation of budding capitalization. The 
Italian condottieri of the fifteenth century are generally 
considered as the originators of this profession. They 
did indeed give to it their name, but to a certain 
extent it had always existed and even exists to-day. 
The commander of paid troops who, eager for money 
and power, assembles an army to make war, either 
on his own account or in the service of a foreign 
power, is a phenomenon which is constantly to be 
met with in history. 

Generally the careers of these adventurers were 
short, ending in a violent death, though not necess- 
arily on the field of battle. Assassination, confis- 
cation of their property — that is an end which 
meets them often. But till then it is a life full of 
excess, without measure, the fife of the parvenu, of the 
true war profiteer. The palaces and monuments of 
the condottieri which still exist in the towns of Northern 
and Central Italy, show the wealth and status which 
these audacious leaders of soldiery were able to win. 
Some impressive figures have come down to us from 
this period. Fascino Cane, the Milanese condottiere, 
acquired a fortune of 400,000 golden florins. That 
of the Venetian condottiere, Colleoni, amounted at the 
time of its confiscation to 216,000 ducats, a fortune 
exceeding that possessed by the contemporary Doge 



of Venice, though the latter was considered to be 
a particularly rich manA 


In the lands of Western Europe the growth of 
royal power put a limit to the wealth and power 
which a general could acquire. All the more freely 
did the condottiere, the type of soldier of fortune, 
spread in Central Europe. It reached its zenith in 
the Thirty Years War and in the person of Wallenstein, 
whose profits from war were perhaps the most con- 
siderable and certainly the most varied ever reached 
by a general. Wallenstein was far from being the 
simple commander of soldiery who with some thou- 
sands under him sets out on the hunt for plunder 
and for power. He was an entrepreneur on a grand 
scale, who supplied arms and aU their accessories. 
He controlled what might be called a whole con- 
sortium of war with many branches and a highly 
complex central administration. 

The former methods by which the condottieri enriched 
themselves were completed by a whole system of con- 
tributions. Wherever Wallenstein’s troops arrived the 
local population was not only liable to requisitions in 
kind, but was, moreover, forced to produce a large 
sum of money, and this regardless of whether they 
were friends, foes or neutrals. In this way funds were 
provided for the current needs of the army, or, to 
use a modern phrase, to meet its running expenses. 
If all went well, Wallenstein could put aside a con- 

^ Jy:ob Burckhardt, Die Kultwr der Renaissance in Italim. gth ed. 
Leipzig i904> voL i, p. 321. 



siderable part of the sum the Emperor was due to 
pay him for his army, though this, by the way, was 
not always paid. After that came the profits on 
goods supplied to the troops of subordinate com- 
manders, the profits on speculations on the fluctua- 
tion of prices, and the profits of inflation, that is to 
say, the profits realized by debasement of the cur- 
rency, a matter in which the general was not without 

Once again, as in the Middle Ages, the acquisition 
of landed property became the chief element in the 
building of a fortune, with this difference that now 
everything took place according to the formulas of 
capitalist economics. Having confiscated the lands 
of his enemies, the general sold them by auction. 
Often he bid for them himself and in this way bought 
land very cheaply, for who would dare to bid against 
Wallenstein’s agent? It was organized pillage with 
all the finesse of modernity. 

To exercise the functions of a capitalist entrepreneur 
and exploiter of war, it is first of all necessary in one 
way or another to get hold of money. Springing 
from a family of small Czech county nobility, only 
moderately well-to-do, Albrecht Wallenstein could 
find no better road to rapid fortune and social ad- 
vancement than that offered by a wealthy marriage. 
In 1609, at the age of twenty-five, he married an 
elderly widow, Lucretia Nikossie von Landeck, the 
owner of large estates. This rich and devout woman 
died not long after, and the young widower inherited 
her lands, four large estates in Moravia whose value 
was estimated at 400,000 florins. 



Now Wallenstein could live in splendour, appear at 
Court, and spend as it pleased him. All the same, 
he preferred, whenever possible, to make use of the 
money of others. Thus he took possession of the 
war funds of the great Moravian nobles who had 
risen against the Emperor. He then declared his 
loyalty to the Emperor, and in proof of his fidelity 
he laid the treasure of 90,000 crowns at the feet of 
his master in Vienna. The Moravian nobles revenged 
themselves by seizing Wallenstein’s estates. For a 
moment he seemed financially ruined, but in the 
long run he showed that he knew how to cast in his 
lot with the winning side. 

The victory went to the Emperor’s troops, amongst 
whom was a regiment of cavalry raised by Wallen- 
stein. Then the tide turned: the Bohemian and 
Moravian rebels suffered wholesale confiscations and 
fines, while those who had remained loyal were 
generously rewarded. Not only did Wallenstein 
regain possession of his own estates, but he also 
obtained those of one of his relations who had fought 
against the Emperor. He was able to exact from the 
towns of Northern Bohemia heavy contributions, 
which went into his own pocket. Moreover, he 
turned the war to good account in another way in 
buying up a great stock of provisions, which he resold 
very profitably in Prague, which was prostrated by 

Accordingly, he had once again at his disposal 
considerable sums of money when in the autumn of 
1621 the imperial treasury started systematically to 
sell or rather to dissipate the confiscated lands. The 



great nobles of Moravia profited to their hearts’ con- 
tent, but Wallenstein surpassed them all. He bought 
several great domains of Berka von Dub; for the 
price of 150,000 florins he acquired the great feudal 
lands of Friedland and Reichenberg ; he got posses- 
sion of the vast estates of Smirzitsky ; and so on. In 
this way, Wallenstein, in the course of two years, 
secured over sixty landed estates. Up to this point 
he had held no high military appointment, yet he 
had become one of the richest landlords in the 

It was this fortune which provided the basis for his 
subsequent career. A few years later, when the 
Emperor was once again in difficulties, Wallenstein 
presented himself in Vienna and offered to equip a 
whole army at his own expense. Could he, he was 
asked, raise an army of 20,000 men? Of 50,000 was 
the answer, and 20,000 were mobilized there and 
then. Later Wallenstein’s army grew to 70,000, 
and even at moments to 100,000. The price, con- 
siderably inflated, which he charged the Emperor 
amounted to 2 million crowns.^ Vienna, always 
impoverished, was incapable of paying such a sum 
in cash. So the general was indemnified with the 
Duchy of Sargan, in Silesia, and the two Duchies 
of Mecklenburg. 

When, after an interval of two years, the Emperor 
once more made Wallenstein his generalissimo, the 
latter secured as much of his profit as possible in 
advance. The Emperor was forced to write off the 

^ Ranke, Geschkhte Wallensteins ^ Meisterwerke, Munich 1915, voL ix, 
p, 26. 

* Wantoch, Millionaires^ p. 60. 


debt of 400,000 crowns which Wallenstein still owed 
for the purchase of the Bohemian estates. In the 
place of Mecklenburg, which just then was occupied 
by the enemy, he received as indemnity the princi- 
pality of Glogau in Silesia. Moreover, he was 
promised revenues from the salt works and mines in 
the reconquered parts of the empire. But Wallenstein 
insisted most of all on being given the right to impose 
taxes of his own on the provinces he subjected. 
And although already ill and with his military fortune 
declining, he did not fail to demand from the Emperor 
the fulfilment of all his promises, both those made 
in writing and even those more lightly given. In 
fact he became more and more exacting, and he 
endeavoured to make sure that his heirs would enjoy 
his wealth. Even in his most daring aspirations after 
power, which finally cost him his life, everything was 
based on calculable profit. 

To the last act of the tragedy of Wallenstein it 
was the question of money which played the decisive 
part. When they wanted to force him to abdicate, 
the burning question was: who would pay? Who 
could replace Wallenstein as the financial centre of 
war, without a general crash resulting? How could 
all the sub-contractors be satisfied, how could the 
creditors? How could all the manifold engagements 
be settled? The muddle recalls the difficulties of 
liquidating a modern financial or industrial concern 
based entirely on the personality of a single head. 
The moment the chief is threatened, catastrophe is 
immment. Wallenstein was well aware of the value 
of this trump in his hand. And it was easy for him 



to convince his subordinates that the financial bonds 
that bound them to him were indissoluble. 

Indeed, things were very complicated. Wallen- 
stein’s colonels had raised their regiments at their 
own cost, and the same was often true of captains 
and their companies. Accordingly, the whole army 
was composed of war entrepreneurs, big and small, 
and Wallenstein had given personal guarantees to 
all. He had made them advances for their equip- 
ment, while on the other hand he was often their 
debtor for current expenses, so that there were com- 
plicated settlements to be made all the time. 

How could such a tangle be unravelled? At one 
time, in Vienna, the possibility of paying off all the 
subordinate commanders was considered. But even 
a superficial calculation sufficed to show that a 
million florins would be needed, and the Emperor 
was incapable of finding such a sum, although con- 
siderable wealth was now flowing in from Spain. In 
the end there remained intrigue and forcible liquida- 
tion as the only way out. To get rid of this military 
magnate, a lawsuit against him was begun, and his 
arrest was ordered. The executive authorities, how- 
ever, instead of carrying out their orders from Vienna, 
promptly assassinated Wallenstein. To excuse this 
irregularity, it was given out that Wallenstein, even 
dispossessed, would have been far too powerful and 
dangerous a man. 

With Wallenstein out of the way, liquidation in 
the end turned out to be less difficult than it might 
have been, and the commanders who had already 
abandoned Wallenstein were handsomely recom- 



pensed with property confiscated from him. On the 
other hand, those who were faithful to him to the last 
were dispossessed and some of them even executed. 
A part of the army was discharged, while the rest was 
drafted into the regular service of the Emperor. 

Of Wallenstein’s immense fortune, which at the 
height of his glory was estimated at 30 million ducats 
(equivalent to about ^4(2, 700,000 to-day), quite a 
considerable part remained in the possession of his 
family, including the sumptuous castles in Prague 
and at Dux in Bohemia. With this wealth Wallen- 
stein’s family, the Counts of Waldstein, were for 
centuries assured of an eminent place among the 
rich nobility of the Austrian Court. Later, one of 
its members acquired glory of another kind in being 
the friend and benefactor of Beethoven. The larger 
part, however, of the profits of war amassed by 
Wallenstein were dispersed in the same fashion as 
they had been acquired by passing into the hands 
of other soldiers of fortune. 


During the decades following the Thirty Years 
War the system of regular armies was adopted nearly 
everywhere. Governments, put on their guard by 
Wallenstein and other similar cases, felt themselves 
obliged to maintain armies at their own expense in 
peace-time as weU as in war-time. Nevertheless the 
financial situation of military leaders remained ex- 
tremely favourable, while at the same time their 
material risks were lessened. 



It was by no means rare for governments to send 
for foreign professional soldiers who were rewarded 
by exceptionally high salaries. In this way, Prince 
Eugene of Savoy, who on his arrival in Vienna was 
possessed of only modest means, was able to make an 
immense fortune in the service of Austria. The Duke 
of Schomburg, who came originally from Germany, 
and who in the course of a varied career had already 
been Marshal of France, was at the age of eighty 
appointed commander-in-chief of an English army 
operating in Ireland. He received from Parliament 
an advance of 100,000. Though now employees, 
generals had still much the same prospects as the 
independent soldiers of fortune had formerly enjoyed. 
They could not only win laurels on the field of 
battle, but could live and even die millionaires. 

Those of them who kept their eye fixed on pecuni- 
ary gain and were not to be satisfied merely with high 
appointments or dignities, quickly became the richest 
men in the country. The Englishman, John Churchill, 
Duke of Marlborough, who gave so much trouble to 
the French troops towards the end of the reign of 
Louis XIV, is a brilliant example of this sort. One 
could even say that this general of genius surpassed 
all other military leaders in turning every act of his 
public and private life into hard cash. 

An impecunious yoimg man, he availed himself of 
the influence of his sister, whose amorous relations 
with James II are well known, and became an ensign 
in the Guards. The income of the young officer rose 
at a stupefying rate. The Duchess of Cleveland 
rewarded his gallantry with a gift of ^^5000. But 



Churchill did not spend money so easily as he acquired 
it. The bulk of the profits of his amours were invested 
in an annuity, while the gold pieces which the great 
ladies slipped into his hand were locked carefully in 
a drawer. That was the debut, according to the most 
authentic contemporary witnesses, of the great Marl- 
borough. After receiving from Turenne, Marshal of 
France, an excellent strategic schooling, and having 
proved his courage on the field of battle, he rose 
quickly in rank in the army and was given brilliant 
opportunities. Now a colonel and a Scottish peer, 
he was sent to the Court of Versailles on a special 
diplomatic mission of a very delicate nature. He 
was sent to thank Louis XIV for the monetary helps 
England had received from France and to prepare 
the ground for the request for further subsidies. 
Churchill accomplished his task admirably, and 
soon 1,500,000 livres arrived from Versailles, a sum 
intended to square the English Parliament. From 
such transactions intermediaries do not come away 
with empty hands if they are of the kind that care 
for money. 

John Churchill was thus very comfortably off when 
at the age of thirty-seven he was made a general and 
appointed henceforward to posts of high command. 
While he was campaigning in England or abroad, his 
wife. Lady Sarah, who set herself also to increase the 
fortunes of the family, was lady of the bedchamber 
and intimate friend of the princess Anne, daughter 
of James II. Her position carried with it a consider- 
able salary, while the favours she received personally 
were more profitable still. Completely dominated by 



the Churchills, the princess was so extravagant that 
Parliament was obliged to increase her civil list 
pension from ^^30,000 to ,^80,000 a year. And the 
Churchill fortune grew and grew. 

Soon after the revolution of 1688 the income of 
John Churchill, now raised to the digruty of Earl 
of Marlborough, amounted to ^12,000 a year, de- 
rived from a multitude of posts and functions of all 
sorts. ^ But in a revolutionary period such as that 
through which England was then passing, the highest 
positions offer no security to those who do not know 
how to adapt themselves to the constantly changing 
political currents. In this domain, Churchill was an 
artist. At the right moment he abandoned James II, 
friend of France, and entered the service of William 
III. Having conspired also against the latter he 
fell for a time into disgrace; but it was not long 
before he was once again in the service of the King 
and in a better situation than ever. 

His most glorious period, however, began in 1702, 
when Anne came to the throne, soon after which 
war broke out between France and England on 
account of the Spanish succession. Given supreme 
command of the English army, Marlborough was 
now able to prove that his career was not just a 
matter of favouritism, but was merited by his remark- 
able military gifts. The victories he won against the 
armies of Louis XIV astonished the whole of Europe. 
They brought him royal gratitude and further riches. 
After his victory at Blenheim, he was made the gift 
of the great estate of Woodstock, near Oxford, an 

^ Macaulay, The History of England. London 1926, vol. ii, p. 268. 



ancient royal domain bringing in £6000 a year.^ 
Further, he received ^140,000 for the construction of 
the really princely Blenheim Palace, which is still dis- 
tinguished among the country houses of England by its 
colossal dimensions and its elaborate architecture. 

England’s allies, too, proved lavishly their gratitude 
to the victorious general. As well as becoming an 
English duke, he was made a prince of the German 
Empire. The visits he paid to the little German 
Courts became a triumphal procession, and precious 
gifts accompanied the expressions of friendship. It is 
not to be wondered at that the commander-in-chief 
was in no hurry to end the war. Those at Versailles 
understood Marlborough, having dealt with him be- 
fore, and they knew that he would not agree to make 
peace unless it was worth his while. So Torcy, the 
French foreign minister, offered him a large sum of 
money. On principle, Marlborough did not refuse 
to listen to this sort of proposition. But at the sum 
of 10 million livres, demanded as the price for an 
armistice, the French lost patience, negotiations fell 
through, and the war went on. 

This time Marlborough, for all his shrewdness, 
made a mistake. The fortune of war once more 
favoured France, and in England, with a new parlia- 
ment, the situation had changed. The Tories, now 
in power, did not want the war to drag on indefinitely, 
so they planned to bring about Marlborough’s fall. 
With a man of such cupidity, pretexts were not 
lacking. It had for long been whispered in London 
that Marlborough put in his pocket large sums 

^ Winston S. Churchill, Marlborough. London 1934, voL ii, p. 519. 



allowed him for entertainment expenses, and that 
even to his own officers he was lacking in the most 
elementary hospitality. Moreover, it was said that 
his lists were falsified, names still appearing on them 
of men long since dead, so that he could go on 
drawing money for their rations. 

And then people got wind of another irregularity. 
The auditors of the army accounts discovered that 
Marlborough was receiving commissions from a con- 
tractor to the tune of ;^50oo or ^6000 a year. The 
evidence was not to be disputed, and Marlborough 
did not attempt denial. But he sought to excuse 
himself in pretending that this money had been used 
by him for secret service work, that is to say in the 
interests of the State. Neither parliament nor public 
opinion, however, was ready to listen to his subterfuges, 
and Queen Anne found herself forced to abandon him. 
The glorious general was relieved of his command, and 
soon after at Utrecht peace was signed with Louis XIV. 

During the last years of his life, Marlborough, now 
in his sixties, was involved in further scandals. It 
was discovered that as a colonel of the Guards he 
had made a profit out of a consignment of shirts to 
his regiment. The indignation of the soldiers at this 
discovery was so violent that mutiny was feared. 
Then Marlborough’s son-in-law, the Earl of Suther- 
land, was inculpated in the South Sea Bubble. When 
any questionable affair came to light, the name of 
Marlborough was always mentioned. Nevertheless, 
his wealth survived his good name. At the end of 
his life his yearly income amounted to 20,000. 
Thus, considering the rate of interest prevalent at 



the time, his fortune must have reached ^2,000,000 
without counting his palace. Indeed, his con- 
temporaries were not very far wrong in considering 
him “the richest subject in Europe,” 

The case of Marlborough is perhaps unique in its 
proportions and in showing the determination which 
cupidity can exert. Marlborough’s type, the soldier 
and courtier who lets no opportunity escape which 
could be turned to profit, is found in many forms 
during the seventeenth and eighteenth centuries. It 
may be found as far afield as Russia, where the 
General Potemkin, the favourite of Catherine the 
Great, subjected the Crimea to the rule of the Tsars 
and amassed himself, though spending inordinately, 
a fortune valued at several million roubles. Rulers 
considered it only natural that their generals should 
lead the lives of grands seigneurs. 

Frederick the Great, who personally was not one 
of the most generous, gives us in his witty Dialogues 
oj the Dead, a conversation in the other world between 
Marlborough and Prince Eugene on the vicissitudes 
of fame. The English general seeks to excuse his 
profits in these words: “It is a legitimate reward 
due to any commander-in-chief; any other in my 
place would have done as much, perhaps more.” 
And although murmurs began to be heard, that was 
the general view taken in those days. 

The Napoleonic Wars 

The French Revolution brought no essential change. 
The new generation of soldiers who rose to power 



under Napoleon had quite a healthy appetite for 
wealth. Nor did the young Bonaparte disdain the 
good things of life, though from the outset he was 
tempted more by fame than money.^ The Italian 
campaign followed the same course as the old raids 
for plunder. The soldiers and junior officers received 
only a minimum of the riches which Bonaparte had 
promised his army beyond the Alps, while the generals 
were despatching to Switzerland for greater security 
the treasures that fell into their hands. When Rome 
was taken, the unjust division of the spoils provoked 
a dangerous revolt among the officers against their 
general, Massena, and the latter, who had entered 
the Eternal City with a somewhat exaggerated zeal, 
had to be recalled in spite of his brilliant success. 

From the expedition to Egypt onwards, Napoleon 
tried to avoid as far as possible this kind of warfare, 
and he continually exhorted his men to abstain from 
pillage of any kind. That officers or men should help 
themselves to wealth was against the Napoleonic 
spirit of authority and centralization. He himself, 
the commander-in-chief, First Consul, or Emperor, 
allotted to each of his followers his just reward. And 
he generously recompensed all their privations and 
rewarded all exceptional services. The principle of 
gratuities, whether as income or as a lump sum, 
settled by authority had already existed before, but 
it had always been mixed with other forms of war 
profit. Now it existed alone, and was the basis of 
the enormous profits of Napoleon’s generals. 

For Napoleon kept his word. After his assumption 

^ Gourgaud^ Journal inidit de x 8 i^ d i 8 x 8 , Paris 1899, voL p. 468. 


of autocratic power, he generously distributed titles 
and wealth amongst his generals. After the victorious 
Prussian campaign gratuities were plentiful. On the 
fall of Danzig, he made Marshal Lefevre a duke. 
This was a man who had risen from the rank of 
non-commissioned officer. And to fit his new dignity, 
an order was sent to the treasury in Paris to buy 
him a chateau and lands bringing in an annual income 
of 100,000 livres. At the same time he told Mollien, 
the Minister of finance, to get hold of twenty chdteaux 
belonging to the old nobility, to be held in reserve 
for future occasions. 

On Napoleon’s return to Fontainbleau in 1807 a 
general distribution took place, for which he had 
made thorough preparations. Of the property seques- 
trated from the State or the Crown in the conquered 
territories, he had put a good deal aside for this 
purpose : in Italy a capital of 30 million francs and 
an income of over a million, in Poland estates worth 
20 million, and in Westphalia an income of 5 to 
6 million. The internal finances of France having 
been put straight with a new budget, the Emperor 
had sufficient funds at his disposal to reward liberally 
those who had contributed to the victory. 12 million 
francs were distributed among the soldiers, 6 million 
among the officers, excluding the generals. The latter 
received no less than 1 1 million. 

It was a carefully calculated pyramid, at the summit 
of which were the millionaires who wore a ducal 
coronet or carried a marshal’s baton. Ordinary 
generals had to be content with salaries of 50,000 
francs a year, that of senior generals rising to 150,000. 



As for marshals, their salaries began with 1 72,000 for 
Augereau and 183,000 for Massena. Mortier and 
Ney got about 200,000 each, while Bernadotte, Soult 
and Lannes got nearly 300,000. Next came Berthier, 
Napoleon’s chief-of-staff, with 405,000, and lastly 
Davout, who won the battle of Auerstaedt, with 
410,000. This was the highest salary of the State 
outside the family of Bonaparte, for the heads of the 
judiciary and the treasury got only 200,000 francs 
apiece, while Fouche, chief of police, and Mollien, 
the financial reformer, got as little as 40,000 to 
50,000 francs.^ 

Cash gratuities were also carefully graded. In one 
distribution, generals received each 100,000 francs, 
most of the marshals 200,000 to 300,000, Berthier 
half a million, while one million was given to Lannes, 
a son of a groom who had risen to the dignity of 
Duke of Montebello. Two Polish generals, Zayon- 
scheck and Dombrovski, got as much as the favourite 
marshal, becoming suddenly millionaires. Similar 
distributions were made on other occasions during 
Napoleon’s campaigns. At one time Lasalle was 
rewarded with a million francs for his extraordinary 

As Napoleon’s empire expanded, his generosity 
increased. The marshals’ salaries were doubled and 
even trebled. Massena’s salary reached 683,000 
francs, Ney’s 728,000, Davout’s 910,000. Berthier’s 
exceeded a million; Prince of Neuchatel, vice- 
constable, marshal, etc., his various appointments 
brought him 1,355,000 francs a year. Nevertheless, 

^ Thiers, Histoire de VEmpire. Paris 1865, voL i, p. 515. 


the prestige of the marshals rested on the fame of 
their exploits rather than on their pay. Civil salaries, 
it is true, also greatly increased, particularly those of 
diplomats.^ But the handsome salaries of Talleyrand 
or Coulaincourt (who was given 800,000 francs as 
ambassador at Petersburg) were intended to enable 
them to entertain on a scale that would impress 
foreign powers. 

But it cannot be said that these immense rewards 
altogether satisfied their recipients or served to bind 
them to their patron. Massena was disappointed at 
not being placed upon a throne like Murat and 
Bernadotte. Murat grumbled at being only made 
King of Naples with 5 million subjects and not King 
of Spain with 13. Bernadotte, becoming King of 
Sweden, detached himself from Napoleon and even 
went into the camp of his enemies. At the moment 
of Napoleon’s first abdication, when his power seemed 
to have been definitely broken, the loyalty of his 
marshals was not in the least proportional to the 
remuneration they had received at his hands, for the 
most rewarded left him as lightly as the others. It 
seems that in the political world, money only binds 
those who are expecting further payment. Napoleon 
realized too late that he had calculated badly. During 
his banishment he was given to melancholy thoughts 
on the independence which material wealth had 
given to his subordinates.® 

Napoleon himself, in the course of twenty years, 

^ Edmond Blanc, NapoUon ses institutions civiles et administrative, 
Paris, pp. 276-299, 325, 326. 

^ August Fournier, NapoUon 4th ed. Vienna 1922, vol, ii, 
p. 205. 



managed to accumulate an immense fortune, often 
putting aside 12 to 15 of the 25 million a year he got. 
But little of it remained. At the time of his first 
abdication, he had still 18 million, but the greater 
part of it was confiscated by the new government. 
On his departure for St. Helena, he was able to send 
secretly to the banker, Lafl&tte, a sum of only 5 million 
francs in gold and bank-notes.^ He took with him 
into exile only 350,000 francs and some silver, which 
he was obliged to sell during these lean years. For 
the funds placed with Laffitte had to be kept secret, 
the whole Bonaparte estate having been officially 
sequestrated in France. On the other hand, the 
fortrmes of his generals remained intact. 


The greatest profits of these wars, and those which 
proved the most lasting, were not, however, those 
realized by Napoleon’s generals, but rather by their 
enemy. It was Napoleon’s conqueror, Wellington, 
who got the lion’s share. Arthur Wellesley belonged 
to a world where money, reputation and power were 
very nearly synonymous. Although the aristocratic 
Irish family from which he came was not particularly 
rich, the young officer had learnt in India, where his 
brother was Governor-General, to think in terms of 
big money. 

The army which Wellington commanded in Spain 
and Portugal was formed of men from every country 
whose ways somewhat resembled those of the soldiers 

^ Mimoires de Laffitte, Paris 1932, pp. 74-78. 


in. the Thirty Years War. The officers were mostly 
rich and of good family. Wellington did not like 
impecunious officers who were obliged to live on their 
pay. Although he was not an entrepreneur of war in 
the old style, he was often forced to intervene in its 
finances, as money did not always come regularly 
from London, and this sometimes involved him in 
complicated transactions. His correspondence with 
the British Government on money matters at times 
resembles in its tone the discussions of Wallenstein 
with the Emperor. But his dominating theme is 
different. Wellington uses threats and reproaches in 
an effort to secure money for his army, and his con- 
stant argument with the gentlemen in Whitehall is : 
better not to go to war if you have not the money to 
pay for it. 

The government were grateful enough to their 
commander-in-chief. They loaded him with titles 
and, when they had the means, with monetary gifts. 
Already for his first successes in the Peninsular War 
they gave him ;^500,ooo. After Waterloo, the English 
Parliament voted him a grant of ,^200,000. Besides 
that he received large estates from the King of the 
Netherlands. It seems that the total of all he was 
given came to nearly a million pounds, so he out- 
distanced all the marshals of Napoleon. And the 
fame he won as Napoleon’s victor gave him political 
power such as no one else has enjoyed in modem 
English history. 

The Prussian generals did not reap so much. 
Titles were given freely; thus Blucher, the com- 
mander-in-chief, and Hardenberg, the chancellor, 



were made hereditary princes. But their material 
gain was so small that their sons renounced succession 
to their titles, feeling their means inadequate to 
enable them to live up to them. It was only after 
a wealthy marriage that Bliicher’s grandson felt rich 
enough to ask for the title to be restored, and the 
Bluchers were ennobled a second time.^ 

Bismarck pleads Jor Gratuities 

The system of grants which reached full develop- 
ment in the time of Napoleon, flourished throughout 
the nineteenth century. Sometimes during a war, 
but more often on its conclusion, victorious generals 
were rewarded with substantial gifts, in some cases 
with special annuities over and above their pay or 
pension. All the same, compared to former periods, 
and taking into account the continued increase in 
the scale of national finance, these gifts became more 
and more modest. In coimtries where monarchs were 
absolute, they might sometimes deal out benefits in 
the Napoleonic style. Thus the Tsar Nicholas I 
rewarded his general, Paskevitch, who had con- 
quered Transcaucasia with a share in the indemnity 
of 80 million roubles which Persia was forced to pay. 
But even Napoleon III, who was anxious to revive 
the glories of the Empire, was much less lavish than 
his uncle in rewarding his marshals. 

In that, he was only conforming to the spirit of the 
times. With the institution of compulsory military 
service and the formation of great national armies, 

^ Bismarckj Gedanken und Ennn$rungen, Stuttgart 1922, voL ii, p. 171. 



public opinion underwent a change. The idea grew 
that in war every citizen would be called upon to 
do his duty and risk his life. Why then should a 
general receive such extraordinary benefits, less 
exposed as he was to the risks and discomforts of war? 
Why should he return from the war a millionaire 
when thousands of soldiers had sacrificed their civil 
livelihood to take up arms? Such thoughts began to 
affect public opinion, and the system of monetary 
grants to soldiers became unpopular. 

There was another factor whose influence was more 
direct. Monarchs and governments could no longer 
scatter money so easily as before. The budget of a 
State was fixed beforehand with considerable pre- 
cision, and all expenditure was rigidly controlled. In 
most countries it was reserved for parliament to 
authorize or to veto the spending of money in this 
way. Accordingly, before making awards, govern- 
ments were obliged to draft legislation, and they had 
even to be prepared to face public debate. This 
constituted a serious obstacle to any largesse in the 
old style. 

These difficulties emerged for the first time when 
Bismarck was in office. Conscious though he was of 
his power, Bismarck was on all money matters a 
Prussian bureaucrat at heart, respecting legal forms. 
When in 1866, after the successful war with Austria, 
the King of Prussia wanted to reward his soldiers, 
Bismarck thought it necessary to submit the matter 
to parliament. It was particularly embarrassing for 
him as he had recently had a violent quarrel with 
the Diet, whose approval he was now to seek, and it 



was all the more so as he was to receive a grant 

In the excitement of victory, however, all went 
well. The Prussian Diet granted a total sum of 
1,500,000 thalers (about :£‘370,ooo), to be distributed 
as the King might think fit. Not published at the 
time, the details were only known later. Bismarck 
received 400,000 thalers, with which he bought the 
famous estate of Varzin and three others in Pomerania. 
The rest of the grant was divided between the generals 
Roon, Moltke, Bittenfeld, Steinmetz and Falckenstein. 

The same procedure was followed after 1870, but 
on a larger scale. This time, 4 million thalers were 
allocated. Even before peace was definitely con- 
cluded or the war indemnity exactly fixed, Bismarck 
in April 1871 came before the Reichstag to get the 
grant authorized. The speech he then made shows 
how conceptions had changed in the two generations 
following the Napoleonic wars. In a verbose and 
sentimental style which was quite foreign to him, 
the chancellor sought to explain to his listeners that 
this was a question close to their monarch’s heart, 
“an act of royal generosity for which His Majesty 
begs you to accord him the means.” ^ 

But that was not all. Although the ordinary 
soldiers of the German army received nothmg, as 
had been the case in the army of Napoleon I, the 
millions which went to the generals were to be 
regarded as a sort of prize destmed to stimulate the 
zeal even of the common grenadier, who theoretically 
could reach the rank of general. There were, in 

Fiirst Bismarck^ s Gesammelte Reden. Berlin 1894, voL i, p. 361. 


fact, a few cases in a century of men rising from 
the ranks to the highest military honours. Bismarck 
went further still in pleading for the grant, repre- 
senting these rewards as a means of education for 
future generations. “If so often the tired soldier 
leaves the service prematurely saying to himself: 
‘I have not reached the goal,’ there still remains for 
him the hope that his sons may accomplish some 
extraordinary feat and in the service of their country 
win that reward which the Kaiser now begs you to 

The Diet responded to Bismarck’s pathetic appeal, 
the grant was voted and the Kaiser, William I, 
divided the 4 million thalers among twenty-seven 
generals as he thought proper. Bismarck, this time, 
received a special reward. At first he refused the 
title of prince which the Kaiser wished to confer on 
him, considering that he was not rich enough to live 
up to it. But his fortune, too, was considerably 
augmented. After a series of administrative com- 
plications, he was given the Sachsenwald, a property 
of about 18,000 acres in Holstein, with the castle of 
Friedrichsruh, the value of which amounted to several 
million marks. 

If in the course of the Prussian wars of Bismarck’s 
time some of the generals got rich, the way in which 
it was accomplished showed already the decline in 
the profits of actual warfare. These no longer fell 
naturally into the hands of victorious generals as had 
formerly been the case, but had to be secured by 
sweet words and hard bargaining from the institutions 
whose business it was to watch over the finances of 



the State. To get rich was no longer the unquestioned 
right of generals. In fact, it was no longer quite to 
the taste of public opinion, which regarded it as 
morally questionable, and had to be placated by 
all sorts of artifices. 

Frank Steinhart 

This trend of opinion became more pronounced 
during the colonial wars at the end of the nineteenth 
and the beginning of the twentieth centuries. Al- 
though at this period of intensive imperialism, when 
economic interests were supreme, people did not 
hesitate to take advantage of colonial expeditions to 
increase their wealth, it was far from being accepted 
that the soldiers in charge of them should have a 
share in the spoils. Even in the seventeenth century 
the colonial soldier had been the servant of the 
business man. If the former was the military 
conqueror, the latter was the economic. By the 
end of the nineteenth century this was still more 

Now, the first steps in imperialist exploitation 
were taken by the business pioneer, pushing his way 
into countries which did not yet belong to any great 
power. It was only after economic interests had in 
this way already developed that State imperialism 
would intervene, sending a military expedition to 
protect the private interests of its nationals. Whether 
it was an English army subjecting the Boers to secure 
the exploitation of South Afirica’s gold and diamond 
mines, or whether it was the United States sending 


war-ships and troops to Mexico to protect the 
American oil magnates against interference from the 
revolutionary government, the generals and admirals 
in command were as a rule outside the economic 
struggle. They were just about as far removed from 
the prize at stake as the policeman guarding the 
jeweller’s shop. They got their allotted pay and 
possibly a supplementary gratuity in recognition of 
exceptional services, but neither the pay nor the 
gratuity bore any relation to the riches for which the 
conflict was fought out. 

Sometimes the commanders of expeditions over- 
seas were rewarded indirectly by being given a place 
on the board of some colonial company, a method 
already in existence in the seventeenth and eighteenth 
centuries, of which Duguay-Trouin provides an 
example. Two centuries after him we find the 
colonial generals of Kaiser William II holding 
directorship in German plantations in Africa. But 
these posts were as a rule not very lucrative. On the 
other hand, young officers occasionally succeeded 
in making a fortune by retiring early from the 
service to make use of the experience they had 
gained in some colonial campaign. This type 
of career has been most common among the 
Belgians and Dutch. In such cases, however, the 
fortunes acquired would hardly be counted as profits 
of war. 

A closer connection between soldiering and busi- 
ness may occasionally be found in the army and navy 
of the United States. It has sometimes happened 
that officers in command of troops in occupation of 



Central American territories have been employed in 
the financial and commercial administrations of the 
country. This has been the case in the republics of 
Haiti and San Domingo. Such positions have not, 
it is true, themselves brought in a fortune, but they 
have given the kind of opportunity which every 
American desires, opening the doors to big business 
and rapid wealth. 

The most interesting example of this kind is pro- 
vided by the career of the American, Frank Steinhart. 
The Spanish-American War gave him his oppor- 
tunity, and he rose from non-commissioned officer to 
being the richest man in Cuba. Born in Germany, 
Steinhart was still a young man when he joined the 
American army. He quickly gained promotion, and 
in 1898 he was chief-of-stafF to General Brook when 
he went to Porto Rico and later to Cuba. Installed 
in Havana, Steinhart was occupied with the adminis- 
tration of justice under the general’s rule. His posi- 
tion was of great importance: every petition and 
every suit passed through his office. Though not 
holding a high rank, he was soon regarded as the 
greatest specialist on Cuban questions in the American 
army. He was called to the ministry of war in 
Washington, but before long returned to Havana as 
special agent of the department of war, which meant, 
during the military occupation, that he held the 
most influential post in the island. The occupation 
over, Steinhart continued to fulfil much the same 
functions as before, with only this difference, that 
his title was now Consul-General of the United 



The end of the Spanish-American War marked 
the beginning of a period of violent internecine 
struggles. On the instance of Steinhart, Washington 
sent a new expeditionary corps in 1906, and it was 
under the protection of American guns that the 
economic conquest of this rich country was finally 
accomplished. Then Steinhart’s harvest began. He 
was put by General Magoon onto the most lucrative 
enterprise in the country, the development of elec- 
tricity. From this beginning issued later the most 
important electricity concern in Cuba, at the head 
of which was Frank Steinhart, a large shareholder 
and its president. 

Around this parent company a whole series of 
enterprises soon grew up, all of them more or less 
under the financial control of Steinhart. He became 
president of the chief insurance companies of Cuba 
and took under his aegis the largest brewery in the 
island. He secured the most valuable lands, under- 
took transport, and owned shipyards. The casino 
of Havana was his, and as agent of the New York 
bankers, Speyer & Co., he arranged big loans for 
local agriculture. No small part of the thousand and 
a quarter million dollars which the Americans invested 
in Cuba passed through his hands. His fortune was 
at one time estimated to run into tens of millions. 
Although we cannot consider it as due directly to 
profits from war, it must be admitted that the sergeant 
would never have become multimillionaire without 
the war and his service in the military administration 
of the island. 



The Gratuities of the European War 

Certain exceptional cases, however, do not alter the 
fact that the age of imperialism has brought small 
reward to professional soldiers. In spite of all the 
admiration accorded to victorious generals, public 
opinion is opposed to their making profits out of war. 
Like any other employee of the State, the general 
is entitled to have his old age provided for. Beyond 
that, he is to be rewarded with honours, not with 
money — that is what public morality now thinks 

The last war confirmed this tendency. Even in 
receiving distinctions, the generals were treated less 
handsomely than in previous wars. In the Austrian 
army, and later in the British, titles were stiU con- 
ferred on a few military leaders. But the Kaiser 
refrained; though, to enhance his own dignity, he 
always greatly enjoyed conferring honours. The 
German generals were no longer made counts or 
princes in reward for military successes. Ludendorfif 
remained a commoner, even after the conclusion of 
peace with Russia. The Kaiser seemed anxious to 
prove his respect for democracy in refraining from 
any revival of a warlike aristocracy. He abstained 
from raising his great generals to a status that 
might remove them further from the ranks of 
the people’s army, and these generals were the 
most potent military figures which the last war 

The same influence was at work, particularly in 
those countries where class antagonism was acute, to 




prevent the granting to generals of castles, estates 
or cash gratuities. Only in Great Britain the old 
system was maintained. The war was still going on 
when Admiral Jellicoe was made a peer and granted 
5^50,000. When the war was over, a whole series 
of grants was made. Haig got ,^100,000, Allenby 
j^50,ooo, Plumer ^^30,000, Robertson and Birdwood 
^10,000 each. Each grant was accompanied by a 
title. Nevertheless, compared to former times, rewards 
of this kind even in England had sensibly diminished. 
And in contrast to what had happened formerly, no 
statesman received a grant. 

In certain cases people were recompensed by re- 
course to special funds. Thus Lloyd George, on his 
retirement from the government, was awarded an 
annuity of ;^2000 from the Carnegie Foundation. 
And a few years after the war, ^^300,000 was raised 
by subscription to enable Haig to reacquire his 
family’s ancestral home of Bemersyde. 

Strange as it may seem, the largest of these retro- 
spective rewards was on the side not of the victors, 
but of the vanquished, the recipient being Hinden- 
burg. We might hesitate to include among the 
profits of war the honour done nine years after the 
war to the old general, now president of the republic, 
on the occasion of his eightieth birthday. We must, 
aU the same, remember that his tardy political career 
was due entirely to the popularity he had gained as 
commander-in-chief. The Hindenburg Spende, the 
public subscription then raised for him, amounted to 
7 million marks. At his express wish the greater part 
of it was devoted to the victims of the war. Part of 



it, however, was set aside so that he could buy back 
for his family its old estate of Neudeck in East Prussia. 
In receiving this personal gift, Hindenburg stressed 
the fact that it was private property in having it 
entered on the land registry in the name of his 

This donation led to unexpected consequences. To 
get the estate once more in repair and to start farming 
it turned out to be more costly than the Hindenburg 
family could afford. In the autumn of 1932, a 
further half-million marks had to be raised by a new 
collection to provide a supplementary donation to 
the family. The Neudeck estate was also mixed in 
the scandal of the Osthilfe, a fund in aid of the 
eastern provinces of the Reich. There seems to 
have been something rather questionable in the 
administration of this government subvention from 
which the junkers to the east of the Elbe drew 
considerable benefits. 

Public opinion was decidedly critical of what had 
been going on among the circle of friends and neigh- 
bours of the Hindenburgs. The Reichstag appointed 
a commission of enquiry. This was to be the last 
action of a German parliament. The debates on 
this subject, touching as they did directly or in- 
directly on the Hindenburg estate, seem from all that 
is known to have supplied one of the reasons why the 
president dismissed Schleicher and called on Hitler 
and Hugenberg to form a government. Thus, far 
beyond its financial importance, this last of the 
gratuities to the generals of the last war had political 
repercussions of no little historical moment. 



Decline of Military Profits 

Considering only the monetary value of the soldiers’ 
profits from the last war, their insignificance is evi- 
dent. In proportion to the colossal expenditure on 
the war, the sums that reached a few generals’ 
pockets were microscopic. In classical times, it had 
been the general who came first whenever there were 
spoils to divide. In fact, the share to the army and 
that to the State depended to a great extent on his 
goodwill, and sometimes it was the lesser part of the 
plunder which he passed on. In the Middle Ages 
and during the centuries of absolute monarchy, the 
plunder reserved for victorious generals was always 
enough to range them among the richest men of their 
age. It is only in the last hundred years that things 
have changed, so that nowadays of successful generals 
only the most favoured win anything that could 
remotely be called a fortune, while more often they 
have in the end nothing but their pension on which 
they can live in comfort but by no means in luxury. 

As we have seen, three factors have contributed to 
the decline of military profits of war. The first is the 
disappearance of the kind of war whose immediate 
object is loot. That does not mean that plunder has 
entirely ceased to exist. But military technique tends 
more and more to reduce it, since its aim is to destroy 
rather than to capture. In the last war, not only on 
the Western front, but also in other theatres of war, 
armies remained for years facing each other in regions 
that were so thoroughly devastated that with the 
best wiU in the world there was practically nothing 



for advancing troops to take. When populated 
regions were evacuated, it was done so systematically 
that there was little wealth to be exacted from the 
people. And with the rapid development of aerial 
warfare it must be assumed that another war would 
be even more destructive than the last. 

The second factor is the growth of bureaucracy in 
the organization of warfare, and this factor is of still 
greater moment than the first in limiting a soldier’s 
opportunities. The economic freedom which a 
general had enjoyed in the days of the soldiers of 
fortune, has gone entirely. Except perhaps in some 
out-of-the-way colonial post, a commanding officer 
is absolutely bound by proper military routine in all 
monetary matters. It is extremely difficult to-day 
for a general to take any steps that might in any 
way further his economic interests. 

The third factor arises neither from military tech- 
nique nor from the growth of administration, but is 
of ethical origin. Since military service has become 
compulsory so that all capable of bearing arms are 
expected to risk their lives, it is regarded by the mass 
of people as inadmissible that military leaders should 
be in a position to turn war to their own pecuniary 

Like the engineer in Soviet Russia, the general is 
now treated as a specialist. He is rewarded with 
suitable honours and at the most he gets some bonus 
in recognition of his special services, but this bonus 
bears no relation to the immense economic factors 
which lie behind the struggle. He may be satisfied 
with the fame he has won and the place in history 



which it will give him, or he may make use of it in 
the acquisition of political power as has been done 
in Germany, in Poland and in Turkey. But the 
moment he seeks to convert his military accomplish- 
ments into hard cash, he will come into conflict with 
public opinion. The general as a war-profiteer: 
that is a conception which accords ill with twentieth- 
century opinion. And there is no reason to suppose 
that this popular conception will get weaker as the 
century advances. 


Money and Power 

It is the business of the banker to act as an inter- 
mediary between those who have at their disposal a 
reserve of money and those who stand in need of it. 
The greater the latter’s need, the more they must 
pay for credit, not only to its ultimate provider, 
but also to the intermediary. And as in time 
of war rulers and governments are in particular 
need of money, exceptional opportunities are en- 
joyed by the banker. That in short is the reason 
why for the last five hundred years there has been 
no war which has not been the occasion of great 
financial profits, and sometimes great financial 

But a reservation must be made at this point. 
Although often called bankers, those who financed 
wars in the pre-capitahst period, and particularly the 
Italians whose activities extended from the Near 
East to England, were not bankers in the modem 
sense of the word. Unlike modem bankers who 
operate with money deposited with them by their 
clients, they generally worked with the fortune which 
they themselves had amassed or inherited, and which 
they lent at a high rate of interest. Thus those who 
risked the financing of a war were for the most part 



already very rich, and this was the case down to the 
seventeenth century. 

When they agreed to finance a war, these rich 
lenders did not, however, always attach great im- 
portance to the rate of interest. In this respect they 
often showed the greatest compliance to their august 
clients. But in return they secured for themselves 
privileges which could be turned to industrial or 
commercial profit, such as mining concessions, mono- 
polies of sale or importation, etc. Sometimes even 
they were given the right to appropriate certain taxes 
as a guarantee of their loans. So though the loan 
itself carried a very real risk and often did not bring 
in much interest, the indirect profits were very con- 
siderable and the lenders’ leniency well rewarded. 

But the royal borrowers were not in love with this 
method of financing their wars, for it proved in the 
end very onerous, the receipts of the treasury being 
heavily encumbered by these privileges. Besides, 
Sovereigns were of the opinion that they ought to be 
able to create money without recourse to anybody, 
otherwise their power could not be called absolute. 
On the other hand their need of money was con- 
stantly increasing. In fact, even during the short 
periods of peace which separated their wars, the 
upkeep of their permanent armies required more 
than could be exacted from the people even by the 
most ruthless fiscal methods. The saying of the 
Austrian General Montecuccoli, that to make war 
one needed money, more money, and still more 
money, became the anxious watchword which echoed 
through all the Courts of Europe. 



From the second half of the seventeenth century 
the ingenuity of statesmen was strained to contrive 
new methods of raising money for the State. There 
were no means too ruthless, too daring or too fantastic 
to be considered at least worth trying. Governments 
plunged into commerce and industry, producing, 
buying and selling on their own account, and putting 
into wholesale practice what to-day would be called 
State Capitalism. But this did not suffice to meet 
the expenses of armies and navies whose demands, 
even in peace-time, absorbed two-thirds or three- 
quarters of the total revenue. Accordingly banks 
came to be established whose special function it was 
to provide the State with loans to finance armaments 
and wars. 

From this point to the actual creation of money 
was only a step, and it was not long before it was 
taken. The traditional method, which consisted in 
reducing the content of precious metal in the coinage 
and thus husbanding reserves, was still often applied, 
but those with more advanced ideas regarded it as 
obsolete and illogical. So the Scotsman John Law 
proposed a far more efficacious means. His suggestion 
was that notes should be printed guaranteed by an 
assumed colonial source of wealth ; these notes were 
to be declared money, and at a blow the treasury 
would be rich. At first this audacious scheme was 
only executed in Paris and in London. At the same 
time, in spite of previous failures, efforts were being 
made in a dozen European capitals to manufacture 
gold by chemical process. One of the alchemists at 
work, the imposter Ruggiero, not only obtained from 


the Prince Elector Max-Emmanuel of Bavaria an 
advance of several hundred thousand florms, but he 
rapidly attained high rank in the military hierarchy. 

The secret processes which were to make gold or 
silver proved ineffectual, so the disillusioned rulers 
were obliged in the end to turn to the private bankers 
for the credits they needed. But now these dealings 
took on a different character. To be banker to the 
Sovereign was no longer a privilege reserved to men 
of great wealth. Many rulers preferred on the con- 
trary to deal with small money changers or brokers, 
or other agents of no particular fortune. In fact the 
more insignificant and compliant the latter were, 
the more favour did they find in the eyes of their 
rulers, so long as they knew their business and were 
able to find money or matter where nor how. 

In this way the Court Jew came into being, a man 
who still showed all the servility of the Ghetto and 
who was ready to put his hand to any business. In 
most cases the Sovereign was not their client but 
their employer. Their duty was to undertake all 
those miscellaneous transactions, for the most part 
commercial in nature, which aimed at supplementing 
the official revenue. If by chance there was a surplus 
in hand, it was they who were charged with its 
investment. Often these agents attached to the person 
of the Sovereign became influential counsellors. It 
might even happen that they were entrusted with the 
official administration of the finances of the State, 
without, however, their giving up their other business 
activities. Their income consisted in the main of 



For a century and a half this sort of bankers, or 
more precisely agents of the Court, played a leading 
part in the financing of wars. Most of them, provided 
they did not fall into disgrace, succeeded in making 
a substantial fortune, becoming in the end lenders 
themselves, and in that role they might even lend 
money to the Crown. Among them were some — 
like the Jew Siiss Oppenheimer, financial counsellor 
to Charles Alexander of Wiirtemberg — ^whose pic- 
turesque character or tragic destiny has won a place 
in history. But not one of them was distinguished 
by really immense wealth or by any outstanding 
economic successes. 

It was only in the time of Napoleon, when wars 
and their finances had acquired altogether new pro- 
portions, that a family descended from these small 
Court brokers reached a position which made it in 
the eyes of succeeding generations the symbol of 
high finance. This was the family of Rothschild. 
The profits accumulated during the Napoleonic wars 
enabled the Rothschilds to build up an immense 
fortune, the largest which the world had so far known. 

The Rothschilds created a new type of Court or 
State banker. As in the Renaissance, the great 
financier became a powerful factor in national and 
international affairs. The great banker is no longer 
a hired agent working on commission. In his relations 
to the State he can now be regarded more as an ally 
or partner. He acts in complete independence and 
in the last resort it is often his decision that counts 
for most. On his will depends in great measure the 
outbreak and the duration of a war, as well as the 



conditions of the ensuing peace. This state of affairs 
lasted until the second half of the nineteenth century, 
when the private bankers began to be supplanted by 
the great joint-stock banks. But this change, when 
it finally came, was more formal than real, for already 
the private bankers were important not so much by 
virtue of their own fortxme but rather of the financial 
organization under their control. 

The last war proved abundantly that in a really 
serious situation, a single great bank, to say nothing 
of a private banker, was quite unable to satisfy the 
colossal demand for money by the State. Once more, 
though under entirely different social conditions, the 
same point was arrived at as was reached by the 
rulers at the end of the seventeenth century. The 
State itself must create or raise the money it needed 
for the war. Under various names — treasury bonds, 
currency notes, war loans, etc. — ^vast sums were 
brought into being whose sole object was to pay for 
war material. Credits of this size could not possibly 
be obtained from a limited circle of capitalists, as 
had been done in former times when banks or bankers 
made their loans for the prosecution of a war. Now 
all sources of money must be tapped, every class of 
society must contribute. From time to time, it is 
true, recourse was had to the more traditional pro- 
cedure, and a loan was floated by the mediation of a 
group of banks, but for the most part it is the State 
that is its own banker. The banks nb jpnger play 
the part played by the Court bankers of the seven- 
teenth and eighteenth centuries. 

Only America provided an exception. Morgan 


was still the grand all-powerful financier in the old 
style, and, like the Rothschilds a century before, 
rendered the most valuable services to the Allies. 
But it must be noted that Morgan only enjoyed this 
plenitude of power so long as the United States 
remained neutral. As soon as they entered the war, 
the government was obliged to step in. 

That is the changing picture which history reveals 
concerning the financing of wars. At times bankers, 
rolling in wealth, rose to dignity and power, at other 
moments we see them crawling in servile fashion 
through the Courts of Europe. And then again we 
see them recede into the background. 

The Florentine Bankers 

Let us look a little more closely at the ramifications 
of this drama. Right at the start we hear the rumb- 
lings of a formidable crash. One of the first great 
events of capitalist economics was the Florentine 
catastrophe of 1345. The banking houses of Bardi 
and Peruzzi had lent sums to the English Crown 
which in the end reached an enormous figure, the 
money being borrowed for war purposes. When, 
during the early years of the Hundred Years War, 
Edward III suspended payments, the Florentines were 
faced with an irrecoverable debt of 1,355,000 gold 
florins, which is about ^4,000,000 in the money of 
to-day. They were ruined, and in their fall they 
brought with them a number of commercial houses 
in Florence. Those who might be distressed by this 
story may console themselves by trying to answer 



this question : for such a huge sum to have been lost, 
how much must the Florentine financiers have pre- 
viously made from their loans to the Kings of Naples, 
France and England? 

Compared to these immense transactions the opera- 
tions of the Medicis, the most famous bankers of Italy, 
seem relatively small. At the beginning of the 
fifteenth century they financed with 60,000 florins 
the ill-fated campaign undertaken by Rupert, King 
of the Palatinate, against Milan; but this loan was 
guaranteed by the town of Florence. Soon after, 
they entered into financial relations with the Pope, 
becoming the latter’s bankers both in peace and war. 
Later, two members of this family occupied the 
Papacy. The Papacy, which was at this period the 
greatest financial power in the world, entrusted the 
House of Medici with the management of some of 
its property, but for the most part had recourse to it 
for loans. The debt of the Papal States to this Floren- 
tine bank amounted at times to 250,000 gold florins. 
According to the custom of the times, the debts were 
generally guaranteed by the receipts from certain 
taxes, though sometimes commercial or mining con- 
cessions were granted to the lenders. 

Successive generations of the Medicis did business 
with the King of England and the Duke of Burgundy. 
But the Florentines were not happy in their dealings 
with distant countries. Edward IV of England cost 
the Medicis over 50,000 gold florins. But they were 
more prudent in placing their capital than the houses 
of Bardi or Peruzzi had been, and a single loss did not 
sufiice to ruiu them. For several generations the 


fortune of the Medicis kept a surprising stability for 
political bankers. The great members of this family 
during the fifteenth century left each of them a fortune 
of about 250,000 florins, which represents about 
;^650 ,ooo in English currency to-day. Moreover, 
more than double this sum had been spent by them 
in the erection of public buildings and in charitable 

Jacques Cceur 

The commercial operations and war loans effected 
by the great French banker, Jacques Cceur, the 
minister of finance under Charles VII, were on a 
much more imposing scale. Jacques Cceur had 
acquired his immense fortune chiefly in trade with 
the East — ^his organization involved 300 branch offices 
abroad — and in managing the royal mint. We have 
no basis on which we could calculate his wealth, but 
we know that he was in a position to place very large 
sums at the disposal of Charles VII. In 1449 he lent 
the King 200,000 crowns to help him reconquer 
Normandy, and 60,000 livres (over ,^100,000) to 
repurchase Cherbourg. ^ 

At the same time he was banker to the aristocracy 
and to the courtesans. And it wa,s the inability of his 
noble debtors to pay him what they owed that 
brought about his fall. In the course of a lawsuit 
brought against him he was accused of having 
exported capital, of having financed infidels in then- 
wars with Christian powers, and of having furnished 
them with arms. His property was confiscated. .He 
^ Edmond Jonglcux, Ccewr. Bourges, undated, p. 19. 


himself was condemned to three years’ imprisonment, 
but he managed to escape, and fled abroad. Re- 
habilitated by the Pope, he ended in the Island of 
Ohio in 1456 commanding a naval expedition sent 
by the Pope against the Turks. He was certainly no 
longer, as in the days of his glory, the richest man in 
France, but he does not seem to have been altogether 
impoverished. The major part of his confiscated 
fortune was restored to his descendants by Louis XL 

The Power of the Fuggers 

Two generations later a German counterpart to 
Jacques Coeur was to be found in the person of Jacob 
Fugger of Augsburg. Like his forerimner, Fugger 
was the founder of a great international commercial 
house which had dealings with half the world. As 
was natural after the discovery of America, the eyes 
of merchants turned more towards the West than the 
East. Fugger too had a lucrative post in managing 
a mint, that of the Pope, and, like Jacques Coeur, he 
was a Court banker and a great financer of wars. 

The point of departure for Jacob Fugger ’s career 
as a political financier was furnished by the un- 
fortunate campaign of the Archduke Sigismund of 
Tyrol against Venice. The archduke was beaten 
and was due to pay a considerable indemnity, for 
which, however, he had not sufficient funds. Fugger, 
who till then had been at the head of an important 
concern, but was by no means a great figure in 
finance, undertook to settle the matter. In return 
he was given copper and silver mines in the Tyrol. 



The metal they produced was sold by him in Venice, 
Milan and Rome, chiefly for armaments, and the 
profits he made were such that he was soon in a 
position to offer more substantial loans. The deal 
proved much less profitable to the Tyrolese, but they 
turned, not on Fugger, but on their ruler, whom they 
held responsible for their misfortunes. They banished 
him and offered the throne to the Emperor’s son. 
The latter, on his father’s death in 1493, became the 
Emperor Maximilian I. 

Their new master, both enterprising and warlike, 
extorted from them far more money than his pre- 
decessor. But as his faithful subjects were quite unable 
to provide all he needed, Fugger came on the scene 
once more, lending him considerable sums. The 
money thus provided enabled him to replace his old 
troops with mercenaries and to furnish them with 
firearms. Fugger’s support was assured him in his 
struggle with Switzerland, Venice and France. And 
for all this Fugger was able to recoup himself in 
exploiting the Tyrolese mines, which in the course of 
a few years brought him in 400,000 florins. 

The prestige acquired by Fugger as banker to the 
Emperor and the success of his branches in the North 
of Italy brought him to Rome. The quarrelsome 
Pope Julius II, who himself commanded the Papal 
army, was constantly in need of money to arm his 
troops as well as for his building activities, and 
Fugger took the opportunity to do business with him. 
Fugger’s bank in Rome advanced money for the 
recruitment of the Swiss Guards and for the equip- 
ment of the Papal troops. Under the next Pope, 




Leo X, a Medici, Fugger’s relations with the Papacy 
became closer still. He leased the Papal mint and 
thus established himself firmly as one of the official 
bankers to the Church. 

Banker at the same time to the Emperor and to 
the Pope, Fugger was destined to play a part in two 
critical events in the history of the world. Fugger 
was the financier who organized the sale of indul- 
gences. This remission of sins in exchange for cash 
had been condemned by Luther in his 95 theses, 
the publication of which was the starting-point of 
the Reformation. Two years later he financed the 
election to the Imperial throne of Charles IV, the 
young King of Spain, whose opponent was Francis I 
of France. To win the election the votes of each of 
the seven Electors had to be bought. The cost 
amoxmted to 852,000 florins, of which Fugger provided 
543,000, that is, nearly ^^2,000,000. 

The new Emperor, with the title now of Charles V, 
at once proved himself, contrary to what had been 
expected, a Sovereign endowed with eminent qualities 
both as statesman and military leader, but, like the 
majority of great rulers, he was not an agreeable 
debtor. Fugger had to pester him for years before 
he got his loan repaid, though in the end he did, 
with handsome profits and important concessions 
in Spain.^ 

When this debt was settled, Fugger returned once 
more to the r61e he had filled in the time of the 
Emperor Maximilian, financing all the military opera- 

^ E. Reinhardt, Jakob Fugger, der Reiche aits Augsburg. Berlin load, 
P. 129. 


tions of Charles V. He lent to the latter — and this 
time he certainly acted from conviction — the sums 
needed for suppressing the peasant risings. He 
financed the defence of the Empire against the Turks, 
to whom he had not long before supplied war material. 
But above all he was the Emperor’s banker in the 
war against France. The great victory of the German 
and Spanish troops at Pavia, where Francis I was 
taken prisoner, would certainly not have been possible 
without the money and war material which Fugger 
had supplied. As a guarantee of what was now owed 
him, the fiscal revenue of Naples was pledged to him, 
Naples at that time belonging to Spain. 

Since the days of ancient Rome down to the 
beginning of the nineteenth century, that is, until 
the rise of the Rothschilds, no other family engaged 
in the financing of war and politics amassed a fortune 
equal to that of the Fuggers. Between 15 ii and 
1527 alone, the period of the Fuggers’ most intensive 
activity in politics, their fortune increased tenfold, 
from 200,000 to 2,000,000 florins, the latter sum 
being equivalent to over ,^6,500,000. Of this, 750,000 
florins belonged to Jacob Fugger the head of the 
business, the rest to other members of the family. 
The next generation saw this fortune increase further, 
reaching in 1546 the sum of 4,700,000 florins, which 
was to be its culminating point. 

Like most fortunes made by political means, that 
of the Fuggers declined as a result of political changes. 
In the second half of the sixteenth century, the decay 
of Spain and the two successive bankruptcies of its 
government inflicted very severe losses on this house. 



On the other hand attempts to extend business in 
Eastern Europe, particularly in Hungary, met with 
rebuffs. The Fuggers’ power slipped gradually away, 
and by the time of the Thirty Years War it had 
dwindled to nothing. All that was now left them 
was to retire to their rural estates, which they had 
managed to conserve. 

About this time another great banking house went 
under, that of Welser of Augsburg, which after the 
Fuggers’ was the greatest financial and commercial 
enterprise in Germany. This firm too had taken 
part in financing the election of Charles V, and 
subsequently lent the Emperor considerable sums for 
the furtherance of his military aims. It was given 
in exchange commercial and colonial concessions in 
America, particularly in Venezuela. But the career 
of the Welser family was less fortunate than that of 
the Fuggers, for the last member died in prison. 

Foundation of the Bank of England 

The decline of the great financial dynasties of the 
Renaissance does not mean that great commercial 
fortunes ceased to play a part in the financing of war. 
But the new commercial magnates which came to 
the fore, sometimes in Holland, sometimes in England, 
preferred to undertake military operations on then- 
own account, either on sea or in distant countries. 
They foxmded colonial companies, which were given 
the privilege to make war in a specified area. The 
most brilHant success achieved by any commercial 
undertaking in the seventeenth century was the 



capture of the Spanish silver fleet by the Dutch West 
India Company. A cargo of 15 million florins fell 
into the Dutchmen’s hands, and a dividend of 50% 
was promptly paid to the shareholders. Whatever 
had been the profits gained by financing the wars 
of kings and princes they were not to be compared 
with this. 

On the other hand the financial condition of warring 
states tended to become more and more precarious. 
So, to enlist the support of capitalists in European 
wars, governments adopted the methods already 
applied to colonial expeditions, floating companies 
of shareholders. The most lasting of these institutions 
was the Bank of England, founded in 1694. Its object 
at first was nothing else than to furnish credits for 
war. In order to bring to a successful conclusion'the 
war against France, the government sought to tempt 
capitalists to lend to the State a sum of 1,2 00, 000 
at an interest of 8%. But this rate of interest alone 
was not tempting enough to unloose people’s purse- 
strings, and the government had to offer additional 

What was suggested was the formation of a company 
with a capital of 200,000 to found a bank. The 
capital raised was to be placed at the disposal of the 
State at 8% interest. At the same time the bank 
was to have the right to print and issue paper notes 
to an equivalent amount, which notes were to be 
officially recognized as money. Further, the bank 
was authorized to xmdertake all kinds of banking 
business, thus offering the shareholders the prospect 
of considerable profit. It was essential for the govern- 


ment to be provided with gold and silver currency 
for the payment of its troops abroad. For internal 
needs paper money could be used. 

The author of this famous plan was a Scotsman 
called William Paterson, a clever adventurer who 
had been for a long time in the West Indies, whether 
as pirate or missionary no one could be quite sure. 
Certainly he inspired less confidence than his com- 
patriot John Law; all the same, Paterson’s plan 
was sound. 

In itself paper money was by no means new to the 
English. For a long time already the jewellers of 
Lombard Street had been giving gold and silver 
certificates as receipts for metal left in their custody 
for safe keeping. Little by Httle these certificates had 
acquired the character of paper money. But the 
notes now issued by the newly founded bank were 
covered, contrary to what was officially given out, by 
only an insignificant reserve of metal. There might 
even be no cover at all, for the specie which formed 
the initial capital of the bank was, as we have said, 
at the disposal of the government. The day when 
the goldsmiths, who saw in the new institution a 
formidable competitor, organized a run on the bank, 
presenting for redemption a large quantity of notes, 
it was no longer possible to conceal how utterly 
inadequate the reserve was. 

But in spite of its obvious shortcomings, Paterson’s 
plan was welcomed. Forty subscribers at once took 
shares to the value of half a million pounds, and in 
ten days the whole capital was raised. Results were 
at first disappointing. Bank-notes suffered a depre- 



elation of 20% below the value of coin, and the 
shares fell considerably. On the other hand the 
transaction did not suffice for the government’s needs. 
The latter had soon to seek further sources of credit 
and for the first time in financial history tried the 
issue of treasury bonds. It was only towards the 
end of the War of Spanish Succession in 1711 that 
the Bank of England was able to increase its capital 
to ^2,200,000, thus putting a further million at the 
disposal of the State. 

Although in the end their investment proved satis- 
factory, the first shareholders of the Bank of England 
did not make much out of the war. Nor did the 
establishment of the bank bring a fortune to the 
author of the scheme. The latter, who of course had 
embarked on other speculative ventures, died in 1718, 
leaving barely ,(^10,000. 

Manipulating the Currency 

In the formation of big companies at the end of 
the seventeenth century and the beginning of the 
eighteenth, we find already the two characteristic 
elements of modem methods for the financing of 
war: the creation of supplementary means of pay- 
ment in the form of paper money and the participation 
in government loans of the largest possible number 
of people. But the art of the creation of money 
which the Scotsmen Paterson and Law had been 
teaching to the world was not after all so easy to 
learn. Some of these companies — the Compagnie des 
Indes in France and the South Sea Company in 


England — caused widespread ruin about 1720, and 
both governments and investors were for long anxious 
not to risk further experiences of this kind. 

Apart from compulsory loans, which after all were 
only disguised forms of taxation, the number of 
genuine government loans raised up to the end of 
the seventeenth century was quite insignificant. The 
number of people willing to trust the State with 
their money was small. Thus, even in 1778, during 
the American War of Independence, when the Eng- 
lish Government issued a public loan, they found only 
240 subscribers. And a few years later it was regarded 
as sensational in the City of London when the govern- 
ment at a critical moment for the country — England 
being then simultaneously at war with the American 
colonies, France, Spain and Holland — tried once more 
a public loan and found this time over a thousand 

The system of paper money, too, continued to give 
trouble. During the war the usefulness of notes was 
very restricted. Soldiers insisted on being paid in 
specie. So in a time of crisis recourse had to be 
made to the older system of inflation, the debasement 
of the currency. A brilliant example of this was the 
financing of the Seven Years War by Frederick the 
Great. In 1757 he leased the mints of Dresden and 
Leipzig to the bankers Veitel Ephraim and Daniel 
Itzig, authorizing them to make 20 thalers with 
the metal that had hitherto been used for 14. By 
the diminution by 40% of the metal content in 
the currency, the Prussian Government made 
between two and three million thalers a year, a 


sum which covered nearly a quarter of the expenses 
of the war. 

In the course of the years which followed, this 
method was applied even more ruthlessly. The mint 
of Brandenburg was also leased to Ephraim and 
Itzig, who were this time authorized to make coin 
whose metal content was reduced by a good 50%. 
This debased coin was intended not only for internal 
use, but still more for use abroad. In this matter 
Ephraim’s firm seems to have exhibited remarkable 
prowess. At all events the bankers boasted — ^with 
possibly some exaggeration — of having amassed in 
enemy countries a hoard of 50 million good pieces of 
money in exchange for the depreciated pieces they 
themselves had struck.^ In fact this traffic in money 
brought 6 million thalers a year into the Prussian 
treasury during the last years of the war without 
counting the very considerable profit netted by the 
bankers. The vigorous financial control exercised 
by Frederick, however, hindered the acquisition of 
enormous private fortunes, and the bankers Ephraim 
and Itzig did not succeed in piling up immense 

The Loans oj the Landgrave oj Hesse-Cassel 

If we enquire how the Rothschilds a generation 
later achieved a success incomparably greater than 
that achieved by any Court banker during the seven- 
teenth and eighteenth centuries, we find that it was 
not due to financial genius alone. Indeed the old 

^ Max Maurenbrecher, Die Hohenzollern-Legende. Berlin, undated, 
vol. ii, p. 513. 



Meyer Amschel, the founder of this house in Frankfort, 
was certainly no genius, and we shall look in vain 
through the lives of his five sons, including even that 
of Nathan Rothschild of London who was the most 
gifted and the most successful, for any great or 
original ideas such as those conceived by Paterson 
or Law. 

It cannot, however, be said that the Rothschilds 
amassed their fortune by the sole means of speculation. 
They showed, it is true, great ability in taking advan- 
tage of the excellent opportimities for speculation 
offered by the upheavals of the Napoleonic era. 
But it is no less true that they were not really specu- 
lators by temperament. Unlike their contemporary 
Ouvrard, who made one of the biggest fortunes of 
the day in a few bold strokes, they were, although 
enterprising, prudent rather than audacious, and 
with a strong hoarding instinct. It is this character 
which has enabled them to accomplish the very rare 
feat of conserving a fortune for over a century. But 
it does not explain how they could in the short space 
of twenty years rise from their humble origin in the 
Ghetto to multimillionaires of international power, 
for neither the first million nor the first ten million 
were merely the reward of saving. They had to win 
them, and in doing so they had to take risks. 

The Rothschilds’ situation was fundamentally differ- 
ent from that occupied by other Court bankers. 
Their function too was that of Court Jew, but in 
quite another way to their predecessors. Ordinarily 
the bankers’ function was to raise money for their 
Sovereign. For them it was just the opposite, for 



they dealt with one of the very few princes in Europe 
who possessed a surplus of money which was available 
for lending to others. This was William IX, Land- 
grave of Hesse-Cassel, who possessed a greater fund 
of ready money than any other capitalist of his day. 

The enormous fortune which this German prince 
sought continually to invest in profitable loans abroad 
had been derived in great measure from a special 
kind of war profits. The Landgraves of Hesse-Cassel, 
like some others of their kind, had carried on a very 
lucrative commerce from the end of the seventeenth 
century. They hired out their subjects as soldiers to 
one or other of the great powers, particularly to 
England, constantly in need of mercenaries for the 
protracted wars she was waging, and ready to pay 
a good price for well-built men. 

The great-grandfather of William IX had in this 
way made a fortune of 12 million thalers, while his 
father, the Landgrave Frederick II, had done stiU 
better, making some 22 million by providing in all 
16,992 of his subjects, who were shipped to England 
and then to the battlefields of North America. 
William IX continued the trade, and from the second 
year of his reign a further draft of soldiers to England 
brought him a revenue of 675,000 thalers. 

Unlike his father, who had spent the bulk of these 
gains in erecting buildings and in keeping up a 
sumptuous court, William IX succeeded not only in 
conserving his fortune but in sensibly increasing it. 
The idea of using his immense wealth to extend his 
power does not seem to have occurred to him. On 
the contrary, so far as it was possible to a lender. 


he seems to have been anxious to hide his fortune 
from the great powers and also from his many rela- 
tions in other European Courts. Thus he made use 
of a number of bankers who invested his money, 
spreading it carefully amongst at least a dozen 
countries in the form of long- or short-term loans 
of 200,000 or 300,000 thalers at an interest of four 
or four and a half per cent. 

The task of these intermediaries does not seem to 
have been easy. William IX was possessed by an 
almost insane mistrust for even the most devoted of 
those who worked for him, and he bargained for a 
half per cent of interest like the most grasping of 
usurers. Leaving aside their judgment of him in 
other respects, all contemporaries who had dealings 
with him were agreed on his sordid avarice. But 
however that may have been, to be banker to this 
man offered the prospect of becoming oneself a 

So Meyer Amschel Rothschild used all his per- 
severance to make business contact with the Land- 
grave. His beginnings were modest, starting with a 
humble request to be allowed to try to negotiate a 
loan of ,{^1000. After much hesitation and enquiry 
a credit of ;^8oo was finally allotted him. And as 
Rothschild settled the debt punctually and moreover 
paid a higher rate of interest than the other bankers, 
the sums confided to him grew larger and larger, 
until finally he had outdistanced all his rivals. Be- 
tween 1801 and 1806 he arranged eleven important 
loans amounting in all to some 5 million florins 
(about ^6yo,ooo). Seven of these loans went to 



Denmark, but he also provided money to the Land- 
grave of Hesse-Darmstadt and to the Elector of 
Baden. He arranged the settlement of the old debts 
of the King of Prussia and those of the Tsar of Russia ; 
all to the entire satisfaction of the august lender. 

Rothschild invested part of the profits from these 
transactions in his own business, which he continued 
to run in Frankfort and which had considerably 
grown in importance since his third son Nathan had 
set up in Manchester with £20,000 given him by his 
father. Though the old Rothschild made himself 
out to be less rich than he really was, his fortune at 
this period must already have approached a million 
florins. The business done by him and his sons 
during the first decade of the Napoleonic period was, 
it is true, helped from time to time by military 
events, but it cannot be said that this first instalment 
of their great fortune was due directly to profits 
from war. 

The War Dealings of Meyer Amschel Rothschild 

The Rothschilds’ real dealings with war, and with 
them the enormous increase in their fortime, only 
began in 1806. This year brought two events of the 
greatest consequence to them. Firstly, the French 
marched into Cassel and banished the Landgrave, 
who had only recently become Elector, with the title 
of William I. Secondly, Napoleon estabhshed his 
Continental Blockade. As a result of these two 
events the Rothschilds, who hitherto had held no 
political opinions, joined the camp of Napoleon’s 


enemies. And though their enmity to him was for 
many years concealed, they were by no means the 
least redoubtable of his opponents. 

It was the financial affairs of the Elector of Hesse- 
Cassel that had more or less forced the latter to 
range himself among Napoleon’s enemies. William 
was not animated by any political passions, he was 
simply a crowned financier. And he found himself 
in the position of having lent the bulk of his money 
to countries that were at war with Napoleon. A 
considerable part had been placed in England, the 
Austrian Emperor was his debtor, and he had lately 
made a big loan to Prussia. If he had ranged himself 
on Napoleon’s side, these moneys would naturally 
have been lost. Besides, he under-estimated the 
power of resistance and the consequent duration of 
the Napoleonic regime. 

It was only when the French advance posts were 
close to his frontier that William realized his mistake. 
Having erred in his calculations he wanted to patch 
up a compromise as quickly as possible, and one that 
would protect him on all sides, while leaving every 
channel open for the future. But he was too late. 
In vain he had “Neutral Country” written up at 
every frontier post. Napoleon was not to be duped 
by such an obvious manoeuvre. The only course left 
was flight, and William fled through the last gate 
of the town to be left open, that leading to the 

Once his personal security was assured, the next 
thing was to save his fortune. There was no time 
for an organized evacuation of the capital. But all 



that was transportable was stuflFed into cases, hundreds 
of which were hurried to the cellars of the Wilhelms- 
hohe and other castles in the neighbourhood of 
Cassel. Gold and jewels and objets d’art were taken, 
also securities, account books, and the most important 
archives. In the middle of the night five portfolios 
containing bills of exchange, etc., worth a million 
and a half thalers, were carried to the Austrian 
Minister, much to his embarrassment, with a request 
that he should take charge of them. The excess of 
William’s precautions, however, ended by exciting 
suspicion. The French began to search, and then 
to find. 

According to his account books, the movable 
property of the Elector amounted at this period to 
26 million thalers (about ^6,700,000), a sum much 
larger than Napoleon’s personal fortune at any period 
of his reign. Having unearthed 1 1 million thalers, 
the French Governor, Lagrange, considered the spoils 
thus falling into the hands of his Emperor to be 
sufficient and began to think of himself. The ministers 
of Hesse-Cassel slipped nearly a million francs into 
his hands, and in return Lagrange suspended the 
search and even handed back some of the documents. 

Those faithful to William were then faced with 
the hardest part of their task, that of smuggling out 
of the occupied territory the securities which had 
escaped confiscation. For even in exile their always 
mistrustful master wanted to have his property with 
him, first in Denmark and later in Bohemia. Accord- 
ingly voluminous coffers full of bonds worth millions 
of thalers, as well as cases of jewels and plate, were 


sent off on a long and dangerous journey in zigzags 
across Germany, 

This formidable transport of wealth soon gave rise 
to romantic legends of which the principal hero was 
Meyer Amschel Rothschild, such as the story accord- 
ing to which the Elector before his flight gave him 
personally a lot of securities, which he concealed in 
wine barrels buried in his garden during the whole 
of the occupation. As a matter of fact, Rothschild’s 
activities were more ordinary and the papers which 
were given him to keep in his cellar were among the 
least important.^ All the same he undertook, though 
already in his sixties, several arduous journeys to 
visit the Elector, he forwarded letters and transmitted 
confidential messages, and enabled him even in exile 
to invest the money saved from the disaster as profit- 
ably as ever. 

The old Rothschild remained loyal to the Elector, 
even when in 1808 Napoleon put an end to his rule 
in the following laconic terms : “The house of Hesse- 
Cassel has for a number of years sold its subjects to 
England. Thanks to that the Elector has amassed 
riches. It is this unscrupulous procedure which has 
provoked the downfall of his line. The Elector has 
ceased to reign.” 

But the troubles and anxieties suffered by the 
Elector did not make him more generous. He still 
enjoyed, thanks largely to Rothschild, an income of 
750,000 florins a year. But he was niggard to the 
extreme in the payment of commissions and had no 

1 C. W. BerghoefFer, Meyer Amschel Rothschild, 3rd ed. Frankfort 
1924, p. 70 et seq. 


idea of rewarding even the most loyal of his servants. 
Years passed before he could make up his mind to 
repay sums of money which had been advanced 
to him. 

Nevertheless his dealings with the Elector were of 
the greatest help to Rothschild, for in a time of 
general penury they assured sufficient capital to his 
bank in Frankfort. It was always easy for Rothschild 
to make a handsome profit in lending the money 
entrusted to him. 

The Five Frankfort Brothers 

While Meyer Amschel and his eldest sons were 
using their ingenuity to overcome the barriers erected 
by Napoleon, Nathan Rothschild was similarly en- 
gaged in the West of Europe. His efforts were more 
deliberately and directly aimed against Napoleon and 
in favour of England, where he became naturalized 
in 1804. Making use of his experience gained in 
Manchester, centre of the textile industry, he directed 
from London a big trade with the Continent, par- 
ticularly with Frankfort. He exported not only 
English cloth, but sugar, coffee, indigo and other 
products. High profits attended these operations, 
but each delivery demanded consummate resource in 
shifts and subterfuges of all kinds; for during the 
Continental Blockade practically all exports to the 
Continent were regarded by France as contraband. 

Following his father, Nathan soon enlarged his 
business to include finance. Financial dealings, still 
more than trade, were subject to war restrictions, 



and great precautions were needed in dealing with 
foreign countries. When Napoleon in 1810 somewhat 
relaxed the Continental Blockade, Nathan Rothschild 
seized the opportunity offered to extend his financial 

Very lucrative business was provided by the transfer 
of money to the English army in Spain and Portugal, 
where Wellington was beset with grave difficulties. 
All the efforts of the English Government to send 
him money either by sea or overland through France, 
were in vain, and the government ended by leaving 
him to fend for himself. Wellington found himself 
obliged to draw bills on the English Government 
which Spanish or Italian bankers would only discount 
on very harsh terms. At this point Nathan Rothschild 
intervened. He was able to offer Wellington very 
much better terms, even while making a very good 
profit for himself. To get money to Wellington, 
considerable organization was necessary. Rothschild 
got in touch with shipowners and carriers, who got 
the money in specie to Paris. Further stages in the 
journey were concealed behind a whole series of 
agents. In fact the details of this transport remain 
unknown to this day, the most recent studies of the 
Rothschilds furnishing ordy vague hypotheses. But 
the money reached Wellington punctually and 
rendered him inestimable service. 

For these complicated transactions, Nathan Roths- 
child was assisted by his youngest brother James, 
who was then working in France and who was the 
founder of the French branch of the family. James 
had come to Paris in 1811 at the age of 19, provided 



with excellent recommendations, and he was im- 
mediately received at the ministry of finance. He 
did not conceal the fact that he had come to 
France with the object of causing English money 
to flow there, but it went without saying that he did 
nothing which might betray its ultimate destination 
and use. 

In Paris, where money was very scarce, the activities 
of this young man from Frankfort gave rise to great 
satisfaction. Even Mollien, the intelligent minister 
of finance, allowed this young Rothschild to lead 
him by the nose. At one moment the police became 
suspicious and advised his arrest.^ But Mollien inter- 
vened with the assurance that the Rothschilds’ 
activities could only benefit France, so the brothers 
pursued their trade unmolested. From England, 
Nathan shipped the money, while James, generally 
to be found in some port on the north coast of France, 
took over responsibility for its further transport. Thus 
Mollien was able with great satisfaction to inform 
Napoleon that in a single month the Rothschilds 
had transferred 100,000 guineas from England to 

The profitable business which these two brothers 
were doing finally attracted the attention of the 
English authorities. Harries, who was superintending 
supplies to Wellington’s army, sent for Nathan 
Rothschild to sound him. With absolute frankness 
the latter exposed the nature of his operations, and 
in a manner so persuasive that the outcome of the 

^ Conte Corti, Der Aufstieg des Houses Rothschild, Leipzig 1927, 
P* 13^2- 


investigation was to establish permanent financial 
relations between these two men. Harries now en- 
trusted to Rothschild the consignment of government 
monies to Spain, and the Rothschilds’ business became 
more profitable than ever. Nathan had just bought 
a large quantity of Indian gold, which he intended 
at his own risk to send to Spain. He could now, like 
the good patriot he was, complacently hand it over 
to the government and then receive a handsome 
commission for sending it to Wellington by the 
same channels as before, but at the government’s 

During the last period of the Napoleonic wars the 
Rothschild brothers (the father having died in 1812) 
acquired a financial power of some international 
importance, thanks to their various profits from the 
wars, but above all to the relations between Nathan 
and the English treasury. Nearly half of the sub- 
sidies amounting to ^20,000,000 which the Allies 
received from England passed through their hands, 
and although they contented themselves with relatively 
small commissions, the sums they netted were con- 
siderable. The fluctuations in the value of the pound 
were also an appreciable source of profit. 

The Rothschilds tried to make use of their political 
connections to influence the financial administration 
in Vienna and get into close business relations with 
the Emperor of Austria. For some time their efforts 
were in vain. The Prussian Government on the 
other hand welcomed the financial assistance of 
Nathan Rothschild, who at a particularly critical 
moment, during the Hundred Days, offered a loan 



of ;^200,ooo. The brothers in Frankfort supplied a 
further 50,000, so that the final blow delivered by 
Bliicher was paid for by Rothschild money. 

Financiers v. Napoleon 

Considering the services which the Rothschilds 
rendered to the AlHes, particularly to the English, 
in their struggle with Napoleon, it seems astonishing 
that the latter, great organizer that he was, did not 
secure the support of a financial partner worthy of 
him. In France there was certainly no lack of 
opportunities nor of able financiers. During the 
early days of Napoleon’s rule the cleverest of these 
financiers, Gabriel-Julien Ouvrard, made overtures 
to secure the post of banker to the State. But the 
First Consul rejected the advances of this naval 
contractor and prqfiteur millionnaire. In fact a little 
later he ordered an enquiry into Ouvrard’s dealings 
and had him put in prison. Under the Empire the 
same procedure was followed on several occasions 
both against Ouvrard and other financiers. 

It has been suggested that the animosity of Napoleon 
against the most daring financier of the day was due 
to personal motives. Later, after Napoleon’s marriage 
with Josephine, who was always in need of money, 
Ouvrard lent her secretly, while her husband was 
away on the Egyptian campaign, the money she 
wanted for the purchase of the Chateau de Malmaison, 
and was certainly useful to her on other similar 
occasions.^ Ouvrard was indiscreet enough on the 

^ Otto WolfTj Die Geschdfte des Herrn Ouvrard* FranMort 1932, p. 85. 


first opportunity to call Napoleon’s attention to these 
little services he had rendered. It would be a mistake 
to imderestimate the importance of trivial incidents 
of this kind in the lives of great men. In dealing 
with men of genius it is exceedingly difficult to 
distinguish the genius from the human being. Only 
average men possess the faculty of eliminating all 
personal elements from their calculations. 

But however this may be, there must have been 
reasons of another sort influencing the attitude of 
Napoleon to Ouvrard and financiers in general. Like 
nearly all dictators, Napoleon all his life cherished 
an insurmountable mistrust and a hardly concealed 
aversion to bankers and merchants. The fact that 
in special circumstances he knew how to pay them 
compliments does not disprove this general tendency, 
which is manifested both in his words and actions. 
At heart he regarded bankers and merchants as 
superfluous and obnoxious, as well in peace as in 
war. His point of view was that of the conquering 
soldier who knows how to take whatever he stands 
in need of. One day when Ouvrard tried to explain 
to Napoleon the difficulties involved in some financial 
transaction in Spain, the Emperor answered bluntly : 
“Very well, I will march myself on Madrid; with 
500,000 men one gets all one wants.” 

Certainly the Paris financiers under Napoleon were 
not always so docile and compliant as the Rothschilds 
were, at any rate at the beginning, in their dealings 
with governments. The Laffittes and Ouvrards had 
not risen from the Ghetto : they were proud citizens 
formed by the Revolution. They had belonged to 



the Jacobin Club and served on the headquarters 
staffs of revolutionary armies. They did not seek, 
like the old Rothschild, to conceal their fortunes, but 
flaunted them before all the world. Profit might 
tempt them, but political ambition moved them no 
less. Ouvrard, who was always for Napoleon the 
prototype of grasping usurer, pushed insolence so far 
as to tiy, though quite unqualified, to take a hand 
in affairs of State. The Rothschilds at this time 
followed the steps of generals and statesmen, adapting 
their business accordingly, whereas Ouvrard sought to 
shape policy in a direction favourable to his interests. 

When he was trying to arrange a big deal in 
America, he then and there made plans for a fresh 
partition of the New World. Napoleon was to become 
master of all America. The Spanish colonies were 
to become a sort of refuge for the whole Bourbon 
family. The Prince of the Asturias would marry a 
Bonaparte princess. Napoleon might put one of his 
family on a throne in America and “the King of 
America could give his daughter to the King of 
Mexico.” It was in these terms that Ouvrard outlined 
his scheme in a letter to Napoleon.^ 

At the same time he was scheming with the aid of 
Fouche for peace between France and England. This 
too was necessary for his business interests. But now 
his American project took a different form. England 
was to be given the North of the United States while 
France took the territories to the South, including 
the silver mines which Ouvrard wanted to exploit. 
It was in this form that the plan was circulated in 

^ Arthur Levy, Un grand profiteur de guerre. Paris 1929, p. 177. 


English Government circles. Napoleon was furious 
when he came to hear of it, and he once more threw 
Ouvrard into prison, where he remained several years. 
And it was just at this period that the Rothschilds were 
showing feverish activity in the camp of Napoleon’s 

Naturally enough, moves of this sort only confirmed 
Napoleon’s aversion to financiers, and he came to 
regard their activities as a source of public danger. 
The whole technique of modern banking, with its 
system of international clearing, involving relations 
with foreign countries beyond political control, always 
seemed to him disquieting. The shifts and subtleties 
employed by financiers were in contradiction with 
all Napoleon’s notions of money, credit, property 
and security. The Emperor, who in 1812 set off on 
his campaign with a convoy of 55 four-horse waggons 
specially for the transport of money, was never quite 
able to grasp the mobility of credit. The government 
could when necessary requisition the property of the 
private citizen, and the conqueror that of the con- 
quered : it was the right of the State and the right 
of the soldier. But there was something suspect in 
the idea that any citizen who chose to call himself 
a banker could dispose of money which did not 
belong to him. 

The foundation of the Bank of France and the other 
financial reforms effected by Napoleon proved them- 
selves, it is true, lasting and even exemplary. But 
for all that, his financial outlook remained that of 
an eighteenth-century monarch. For him, money 
was gold or silver or a document which gave a right 



to them. For him credit was still what it traditionally 
had been, a loan advanced against a pledge. But 
to give pledges to bankers as Charles V had done 
would have been incompatible with his notion of 
absolute sovereignty. There remained only one 
method : to give bankers for a while a free hand to 
make money as they pleased, and then for him to 
take it from them. If they protested, force had to 
be employed: they were thrown into prison and 
their wealth seized. 

Even under Napoleon, French bankers succeeded 
in amassing immense fortunes, running to a million 
francs a year or more. Laffitte’s meteoric rise to 
wealth is an example. But all of them went in fear 
of the Emperor. After the Battle of Austerlitz, 
Mollien asked the banker Perregaux, Lafiitte’s partner, 
to collect for a commission of a million francs the 
indemnity of 200 million imposed on the Austrians. 
But Perregaux was too frightened to accept. “The 
thing is,” he said to LalRtte, “that the Emperor does 
not believe in honest men: he might suspect me of 
having made on the exchange.” 

The more astute bankers were not content with 
passive resistance, but exercised veritable sabotage. 
At the end of 1807, when they considered that 
Napoleon was imposing excessive charges on them, 
Ouvrard and Vanlerberghe went into liquidation. 
This step was in no way justified by the state of 
their affairs, and was taken solely to escape payments. 
It was constant guerilla warfare that was waged 
against Napoleon by the financiers of Europe, in- 
cluding the French. And when the Emperor was 


finally defeated and sent to Elba, the bankers, now- 
full of enthusiasm and confidence, offered their services 
to the Restoration. 

The Bourbon Restoration 

It seemed that in France, too, the golden age of 
high finance had now begun. Laffitte was appointed 
Governor of the Bank of France and given the 
management of the King’s property. Hoping that 
his position would enable him to make considerable 
sums of money, he generously renounced the gover- 
nor’s salary of 100,000 francs. Ouvrard once more 
became a government contractor. 

The unexpected return of Napoleon was thus at 
first sight a disaster to the financiers. But they were 
agreeably surprised. The Emperor appeared meta- 
morphosed. He wanted himself to profit from the 
breath of liberty, which had come in with the first 
Restoration. He seemed to be thinking of a sort of 
liberal Empire of the kind established by Napoleon III 
shortly before his fall. Laffitte kept his post. Ouvrard 
did an excellent bit of business in lending 50 million 
francs to the government. In exchange he was 
entrusted with the issue of government bonds, the 
terms being such as to give him a profit of 20 or 
25%. But above all he realized his dream when 
Napoleon appointed him munitionnaire geniral, re- 
sponsible for the purchase of all army stores and 
provisions. It was in this capacity that Ouvrard 
took part on the Emperor’s side in the Battle of 



This period, however, was of short duration. The 
disaster of Waterloo brought the reign of Napoleon 
to a final close. A period of twenty years of warfare 
was at an end. All the same the liquidation of the 
war offered brilliant opportunities to the bankers of 
the victors and the vanquished alike. The Laffittes 
and Ouvrards flourished, being generously pardoned 
for having assisted Napoleon in his last struggle. 
But it was the Rothschilds, Napoleon’s most im- 
placable of enemies, who came off best. 

Under Metternich, Austria after long hesitation 
finally agreed to accept financial direction from the 
House of Rothschild. The least important of the 
five brothers, who was at Naples, established a verit- 
able financial dictatorship. The London branch made 
a loan of 20 million thalers to Prussia, which had 
been impoverished by the war. The scope of Nathan’s 
activities from now on extended far beyond the con- 
fines of Europe. In Brazil he became banker both 
to the Emperor and to the government, and before 
long he rivalled in international lending the most 
important banking firm in London, that of Baring. 

Most brilliant of all, however, was the rise of the 
Paris Rothschild. After the Napoleonic wars, the 
finances of France, like those of other countries, 
needed to be put in order. The Bourbons had also 
another care, to provide for the returned Emigre's who 
were mostly as poor as church mice. Already during 
the first Restoration an indemnity had been promised 
them. Their old lands could not be returned to 
them; the peasants now installed on them would 
never have allowed it. So there was nothing for it 



but to recoup them in another way, and it was 
planned to distribute government rentes which would 
provide incomes totalling 30 million francs a year. 
Calculated at 3% this represented a capital of about 
1000 million francs. After detailed consideration it 
was finally decided to fix the capital outlay at 625 
million francs. To raise the sum a huge conversion 
scheme was proposed, reducing the interest on rentes 
from 5% to 3%. This transaction was agreed to, 
and the matter was placed in the hands of James 

Although this scheme met with resistance from the 
small rentiers, it was carried through, and the Roths- 
childs thus attained in France as in so many other 
countries the rank of bankers to the government. In 
1830 a new loan became indispensable for armaments 
for the Algerian expedition, and to help the Greeks 
in their struggle for liberation from Turkish rule. To 
undertake this loan, James Rothschild outbid all other 
bankers, his terms being such as to involve him in 
the most unprofitable deal the Rothschilds had ever 
made. The July revolution in Paris and the pro- 
clamation of Belgian independence, which raised fears 
of the intervention of Russia and Austria, provoked 
a fall in the stock and occasioned grave losses to the 

The Rothschilds become Pacifists 

This painful experience seems to have resulted in 
a fundamental reorientation of the Rothschilds’ out- 
look on the questions of peace and war. 



At the time when they laid the foundations of their 
fortune with the aid of war profits, they were only 
beginners who were ready to jump at any profitable 
deal. Since then they had become great bankers 
specializing in floating government loans, and had 
invested the bulk of their own fortune in government 
stock. The latter is, however, a tender plant, needing 
a tempered climate if its value is to increase, such as 
belongs to times of peace. Only with difficulty can 
it withstand the tempests of war. Thus the Rothschilds 
became the friends of peace. 

This, it must be understood, was a banker’s pacifism. 
James Rothschild, who ran what might be called the 
central information bureau for the whole family, 
wrote feelingly to his brother Salomon in Vienna 
during the troubles in the autumn of 1830. “We 
hold,” he wrote, “900,000 francs in securities which 
will stand at 75% if peace is maintained. If there is 
war, they will fall to 45%.” ^ So the Rothschilds 
used all the influence they possessed in the capitals 
of Europe to prevent the Belgian question lead- 
ing to war, and their efforts were crowned with 

The same situation was repeated ten years later 
when war threatened between France and Prussia. 
This time, too, the explosion was averted, thanks 
largely to the intervention of high finance. The 
widow of Meyer Amschel is reported to have said : 
“If my boys do not want it, there will be no war,” 
and the words certainly contain some measure of 
historical truth. For nearly a century, up to the eve 

^ Coiite Corti, Le Matson Rothschild, Paris. 



of the Russo-Japanese War, whenever a storm was 
brewing, the Rothschilds might be seen making frantic 
efforts to avert catastrophe. 

They could not, of course, go so far as to refuse 
on principle their participation in loans for war, for 
they had become good patriots in each of the various 
countries where they were established. Moreover, 
they would have run a grave risk of compromising 
their financial and social situation if they had 
tried, in time of war, to swim against the tide. 
But they held as far as possible aloof from all war 

In only one case did the Rothschilds depart from 
this rule. That was when they took an active part 
in financing the Crimean War. On very profitable 
conditions the London house undertook the issue of 
an English war loan of ^16,000,000. Furthermore, 
the Rothschilds made a loan to Turkey, guaranteed 
by France and England. Their unusual attitude in 
this case was probably determined by the fact that 
England took part in the war. For ever since the 
Napoleonic wars the Rothschilds had laid it down 
as a principle that money could always be lent to 
England’s allies in confidence that the victory would 
always be on her side. 

All the more sceptical were the Rothschilds of the 
other military ventures of the Second Empire. They 
followed with particular anxiety the war of France 
and Piedmont against Austria which had been 
organized very carefully, and which they had tried 
in vain to stop. For their large interests in both 
Austria and Italy were affected. In Piedmont, 



Cavour at first got financial support from the Swiss 
banker De la Rue, but later got Hambro’s bank in 
London to undertake his big loans. 

Cavour also did some business with the Rothschilds, 
but only when he was no longer at their mercy and 
they no longer able to dictate their terms. When the 
conflict between Italy and Austria reached a critical 
phase, the Rothschilds found themselves between two 
fires. Whichever lost the war, they were bound to 
pay for a part of the breakages. This sombre prospect 
was confirmed, the defeat of Austria causing them 
considerable losses. And the end of the Bourbon 
reign in Naples brought to a close the activities of 
their branch in that town. 

The wealth of the Rothschilds about the middle of 
the nineteenth century was immense. According to 
contemporary estimates, probably much exaggerated, 
the French branch of the family alone possessed a 
fortune of 2000 million francs. But in spite of this 
and the deference shown to them outwardly as verit- 
able princes of finance, in spite of their being received 
by monarchs and statesmen and covered with titles 
and decorations, the political influence of the Roths- 
childs began visibly to shrink. In every government 
and every Court their advice was listened to, but at 
decisive moments it was not followed. 

In France this diminution in their influence was 
perhaps due to the fact that, despite the outward 
favour shown to them, they never enjoyed the con- 
fidence of Napoleon III. For the Rothschilds, the 
latter was an adventurer, while on his side the 
Emperor never forgave their antagonism to Napoleon I 


or the resistance they had offered to the re-establish- 
ment of the Empire. 

With the reign of Napoleon III began the rise of 
another financial group whose political leader, Achille 
Fould, was for many years minister of finance. The 
chief rival of the Rothschilds at this time was the 
Credit MobiHer, the bank of the brothers Pereire who 
were closely connected with the Fould family. It 
was the Credit Mobilier which furnished Napoleon III 
with the money needed for the unhappy attempt to 
restore the Imperial throne in Mexico, while the 
Rothschilds prudently held aloof. In internal affairs, 
too, the Foulds and Pereires assumed more and 
more the office of bankers to the Court and to the 

But the important change which now took place 
was not merely the substitution of one Court banker 
for another. The thing was that from the middle of 
the nineteenth century the government was able to 
free itself from the control of the big bankers, relying 
for support on the mass of small capitalists. The 
growth in the number of holders of government stock 
shows the increasingly democratic character of loans. 
Between 1848 and 1858 the number of holders of 
5% rentes was trebled. Hitherto the bankers had 
enjoyed something of a monopoly, acting as they did 
as confidential advisers to the investing public. But 
now governments began to issue their loans them- 
selves and the public appeared quite ready to entrust 
their money directly to the State without recourse 
to the banks. The latters’ position was thus com- 




It is in Prussia at the time of Bismarck that we 
find once more the type of old Court banker. The 
country did not possess much capital, nor was it 
inclined to employ it in support of Bismarck’s am- 
bitious schemes. The Prussian Diet was in sharp 
conflict with the government, refusing to pass the 
budget or to authorize a loan for armaments. So 
there was an excellent opening for a private banker 
who was prepared to come to the rescue, and from 
those who competed, the choice fell on a Berlin banker, 
Gerson Bleichroder. 

In origin the bank of Bleichrdder was really an 
offshoot from that of the Rothschilds. In spite of 
repeated invitations from the Prussian Government, 
the Rothschild family always hesitated to send one 
of their members to settle in Berlin. They did not 
wish to set up a branch which would compete with 
those in Frankfort and Vienna, to whom they referred 
all their Prussian business. At least that is the 
official version. But there is room for suspecting that 
the Prussian climate and the atmosphere of the 
Hohenzollern Court was hardly congenial to the sons 
and grandsons of Meyer Amschel. So from 1828 
they put their Berlin interests in the hands of Samuel 

His position as agent of the Rothschilds permitted 
Samuel Bleichrdder rapidly to shoot ahead of older 
and wealthier firms. When, after the founder’s death, 
his son Gerson took over, the bank had a reputation 



already well established, though not of an inter- 
national order. Gerson was still more determined 
than his father to follow the Rothschilds’ example 
and participate in the issue of big loans. Once more 
the first opportunity offered was a war. During the 
Franco-Austrian War of 1859, shortly before the 
conclusion of peace, Prussia, on the insistence of 
Austria, ordered mobilization, and to meet expenses 
issued a loan of 30 million thalers. The issue was 
entrusted to a group of banks who received 5 million 
thalers as commission. Among them Bleichroder 
distinguished himself by his special assiduity. For- 
tunately for the bankers, Prussia did not go to war. 
She restricted herself to mobilization and to the 
satisfaction of the subscribers, and still more of the 
bankers, the loan appreciated in value. 

That gave a start to Bleichroder, who thus managed 
to secure the goodwill of the Court. When in 1862 
the conflict between government and Diet on the 
subject of the military budget became acute, Bismarck 
wrote to the Rothschilds at Frankfort, with whom he 
had already done business, asking them to recommend 
a reliable man in Berlin. Naturally the Rothschilds 
recommended their own agent, Bleichroder, whom 
Bismarck accepted all the more readily since he had 
expressed the wish that it should be a Jew.^ 

Gerson Bleichroder laid himself out to give every 
satisfaction, and Bismarck assured him of scope for 
his future activities. In 1864, Prussia, then destitute 
of all financial resources, started war with Denmark. 

^ Carl Fiirstenberg, Die Lebengesckichte eines deutscher Bankiers. Berlin 

1931, p. 48. 



The Prussian Diet had just refused to authorize a 
war loan of 12 million thalers, as it had previously 
refused the increase in military expenditure. The 
war with Denmark was, however, both from a 
financial and a military point of view, a very 
modest prelude to the conflicts to come. Before 
entering into the war with Austria, Bismarck con- 
sidered it indispensable to take all possible financial 

Already in the summer of 1865, a year before the 
declaration of this war, the King of Prussia called 
Bleichroder to Carlsbad to take part in a conference 
on financing the preparations for war. A public loan 
could hardly be considered, for it would have little 
chance of success without the approval of the Diet, 
whose anger had not yet died down. But Bismarck 
and his banker found a solution. Prussia had long 
possessed certain rights in the railway from Cologne 
to Minden. These rights would be sold to the 
railway company itself, which would thus be released 
from all State interference. To carry out this trans- 
action the railway company was to double its capital. 
In this way the investors’ money would be given not 
to the government but to a private company, the 
latter handing it on to the government as quietly as 

This subtle manoeuvre succeeded perfectly and 
Bismarck and his minister of war, Roon, were able 
to go ahead with their preparations. Bleichroder 
scored doubly : firstly in acting as intermediary 
during the sale, secondly in issuing the new shares. 
In reward for his patriotic services he further received 



the title of Geheimer Kommerzienmt and was thence- 
forward regarded officially as financial adviser to the 
government. The agent of the Rothschilds thus be- 
came the Prussian State banker, and it was no secret 
that he also managed Bismarck’s personal affairs, 
which gave him contact with the best possible source 
of political information. After the victorious cam- 
paign of 1866, wealthy clients turned naturally to 
the banker with such good recommendations and so 
well informed, and Gerson Bleichroder soon became 
the richest man in Berlin. 

It was, however, the Franco-Prussian War of 
1870-71 which brought Bleichroder an international 
reputation. At the opening of peace negotiations at 
Versailles, Bismarck sent for Bleichroder and asked him 
to suggest the amount of the indemnity which could 
be exacted from the French. Bleichroder, though 
accustomed to deal in millions of thalers, thought 
he was proposing a colossal sum when he suggested 
1000 million francs.^ But Bismarck was not in the 
mood to be satisfied so easily, and nothing further was 
heard of this figure. Henceforward Bleichroder’s 
fimction at Versailles was to deal with the technical 
problem of the transfer of the indemnity. Opposite 
him as expert adviser to the French Government was 
the baron Alphonse, the son of James Rothschild. 

Count Henckel 

The sum of five thousand million francs which was 
finally fixed for the indemnity was not the result of 

^ Fiirst von Billow^ Denkwiirdigkeitm. Berlin 1931, vol. iv, p. 494. 



Bleichroder’s calculations, but was proposed by Count 
Guido Henckel von Donnersmark, the second financial 
expert brought to Versailles by Bismarck. The per- 
sonality of this aristocrat from Upper Silesia was 
unquestionably stronger and more original than that 
of Bleichroder, the typical Court banker of the old 

Henckel was the descendant of a family remarkable 
both as aristocrats and as financiers. Among his 
ancestors were the Counts Thurzo, who, in concert 
with the Fuggers, had worked important iron mines 
in Hungary.^ Another of his ancestors, Lazarus I. 
Henckel, at the end of the sixteenth century had 
made big loans to the Emperor Rudolf II during the 
wars against the Turks, being given in return the 
estate of Beuthen. 

Owning and working mines, the family had 
amassed a large fortune, though, in 1848, when 
Guido at the age of eighteen came to inherit it, 
it had shrunk very considerably. The estates were 
badly managed and it did not take long for the 
young heir, leading a gay life in Paris during the 
Second Empire, to dissipate the little ready money 
he had. 

It is true that Guido Henckel, even in this rather 
hectic period of his life, was already concerned in 
floating industrial companies, being helped by French 
financiers. But he always spent more than he made, 
and when the Franco-Prussian War broke out he was 
heavily in debt. His projected marriage with “la 

^ Bruno Knochenhauer, Die Oberschles sche Montanindustrie. Gotha 
1927, p. 1 12. 



Paiva, ” the most celebrated demi-mondaine of the Second 
Empire, was not only inspired by affection but was 
also a means to redress his budget. For in the 
course of a long carriere galante she had made a con- 
siderable fortune, to which he had contributed very 

Though in the business world and in private life 
his reputation was not impeccable, Henckel was 
nevertheless regarded in Prussian Court circles as 
something of an expert on France, particularly on 
economic questions. It was in this quality that he 
was called upon to give an opinion on the solvency 
of the French nation. In a single night he prepared 
a memorandum for Bismarck, getting all his infor- 
mation from one document only, the “Almanach de 
Gotha.” But even if this source of information had 
not been available, Henckel had been too intimate 
with the gay life of Paris society to have any other 
conviction than that France, which he only knew 
from this side, was able to pay a very large sum. 
Thus he came to suggest a figure five times larger 
than that proposed by Bleichrbder. Naturally Bis- 
marck preferred five thousand millions to one. He 
first demanded six, to leave a margin for bargaining, 
and in the end it was at Guido Henckel’s figure that 
the matter was settled. 

This was the largest sum that had ever been de- 
manded and paid in any form whatsoever. Rumours 
that Henckel had a direct interest himself in the 
indemnity have never been established, but it is quite 
certain that he made good profit out of the war. 
The fact that Bismarck had had recourse to him in 



so important a matter gave him at once the reputation 
of a serious financier. Moreover, Bismarck appointed 
him Prefect of Metz and even went so far as to offer 
him the Prussian ministry of finance. This last 
Henckel refused, excusing himself on the grounds 
of his misalliance with “la Paiva,” whom he married 
in 1871. 

From now on Henckel occupied himself more 
with his private than with public affairs, and with 
much greater success than he had enjoyed before 
the war. A few weeks after the negotiations at 
Versailles he became chairman of the board of 
the Berliner Bankverein, a bank newly founded 
with a capital of 6 million thalers. For some 
years the bank, doing highly speculative business, 
seems to have made considerable profits, part of 
which naturally came to Henckel. But before 
long thiugs went badly and it finally went into 

Such a phoenix as Henckel, however, came through 
the catastrophe with renewed energy. He formded 
or acquired undertakings of all sorts in Germany, 
Austria, Russia, in the South of France, and in 
Sardinia. Often he sold one business to buy or 
start another. When the last war broke out Henckel, 
then in his eighties zmd with the rank of prince, 
shared with the Krupp family the distinction 
of being the richest German industrialist. His 
fortune amounted to over 200 million marks. His 
having been called to Versailles had certainly borne 



JVar Profits of the Banks 

The great German banks, too, made large profits 
out of the war of 1870. At first the Prussian Govern- 
ment tried to issue a national loan of 100 million 
thalers without help from the banks. But in spite 
of the terms — ^it was offered at 88 with an interest 
of 5% — the public held back. Only two-thirds of 
the loan was actually subscribed. Thus during the 
course of the war the government was forced to 
place the remainder with a group of banks at the 
head of which was the Disconto-Gesellschaft, at that 
time the most important of the Berlin banks. The 
Rothschilds of Frankfort and Bleichroder took a 
secondary place. The success of the campaign had 
its inevitable reaction in financial quarters. Stocks 
rose and the loan turned out to be an excellent deal 
for the banks concerned. 

The profits of the Disconto-Gesellschaft rose from 
1,400,000 thalers in 1869 to 5,600,000 in 1871, and 
when the indemnity flowed in they rose again in 1872 
to 9,300,000, that is to about £2,2^0,000 in present- 
day currency.^ But as always happens after a big 
war, a slump soon put an end to the profit-taking 
from the war. At the beginning of the summer of 
1872 a crash came. All the same a good part of the 
profits that had been made from the war were able 
to weather the storm and formed the basis of the 
prosperity which for some decades was enjoyed by 
German finance. 

1 Walter _ Dobritz, Grimdmg und Anfdnge der Disconto-Gesellschaft. 
Munich-Leipzig 1 93 1 , p. 1 7 1 . 



The Franco-Prussian War was the last big;'^ar to 
be financed chiefly by banks and bankers. AlFeady 
in the Russo-Japanese War the necessary money was 
raised by currency inflation. During this war Russia 
increased the circulation of bank-notes from 600 to 
1200 million roubles and printed 150 million roubles 
of other paper money. It was only after the war 
that a large loan was raised to put the national 
finances and the obsolete monetary system into some 
sort of order. Directly peace was signed, the Prime 
Minister, Count Witte, made arrangements for an 
external loan of about ,{^183,000,000, one of the largest 
sums that had ever been raised at one time, almost 
equalling the French loan issued by Thiers in 1872. 
In the latter case, of course, the money was largely 
put up by Frenchmen to pay off the indemnity and 
thus liberate the regions occupied by the Germans. 

The conditions offered by Russia were so favourable 
that the loan attracted the attention of capitalists all 
over the world. To his great regret, the Berlin 
banker Mendelssohn, who had for years acted as banker 
to Russia, was unable to take advantage of it, at 
least not openly, since the Kaiser for political reasons 
had put a veto on all participation. At the last 
moment Morgan’s bank in New York also refused 
participation, possibly because of the friendly relations 
existing between the Kaiser and the old John Pierpont 
Morgan. So four-fifths of the loan had to be raised 
chiefly in France, but also in financial circles in 
England, Holland and Austria. 

Neitzlin, of the Banque de Paris et des Pays-Bas, 
who was arranging the issue in France, was invited 


by the Tsar to his residence at Tsarskoye Selo and 
was installed in a ducal palace. He fought hard to 
get Russia to pay an interest of 6J%, but in the end 
agreed to 6%. The chief advantage for the bankers 
was that they were not obliged to transfer immediately 
to Russia the money subscribed, but could keep it 
for three months at an interest of ij%.^ From all 
points of view it was a deal which promised handsome 
profit to the bankers. Excited by lavish advertise- 
ment, the public jumped at the loan, and a few days 
after the lists were opened Neitzlin was able to 
write to Petersburg that the loan was “a great 
financial victory.” 

In the face of such a success the Russians who had 
taken part in negotiations thought that they too 
should rake in a little profit themselves. The future 
Prime Minister, Kokovtsov, who had conducted 
negotiations in Paris, asked for 80,000 roubles, but 
Witte refused and Kokovtsov had to be content with 
the Order of Alexander-Nevsky. A still greater dis- 
appointment, however, awaited the happy lenders of 
igo6. Twelve years later, when the Tsarist regime 
came to an end, this loan was repudiated with the 
other Russian debts and its value on the market fell 
to practically nothing. 

Financing the European War 

When the last war broke out it was generally 
recognized that no bank or group of banks was in 
a position to raise the funds required. In some 

^ Count Witte, Erinnerungen, Berlin 1923, p. 449 * 



countries a special fund for war had been set aside, 
as had been done in Ancient Rome, which should 
serve to meet initial expenses. But mobilization alone 
cost more than entire wars had cost in the nineteenth 
century. And though governments made haste to 
issue internal war loans, the money raised was far 
from being sufficient, and it was not long before they 
were forced to have recourse to the printing press. 
By the time of the Bolshevik revolution the circulation 
of paper money in Russia had already been quad- 
rupled; in England it increased fifteenfold in the 
course of the war, in Germany eightfold, in France 
sixfold. The State resorted once more to manu- 
facturing its own money, as it had in the eighteenth 

At first the spurt in industry resulting from the 
increased demand for goods during the war brought 
profits to the bankers, their business increasing rapidly. 
But the bulk of these profits were absorbed by im- 
mediate losses. Moratoria were declared and other 
restrictive measures introduced for the alleviation of 
debtors. Whole fields of banking activity such as 
operations on the stock markets were temporarily 
closed, while overhead costs went up with the general 
rise in prices. 

In the actual financing of the war, banks and 
bankers played only a secondary part. They had only 
to be compliant and rest content with what the 
State allotted them in return for their services. They 
were compelled to appeal to the public to subscribe 
to war loans, and in issuing loans their profits were 
meagre in comparison with former times. From 1914 


to 1918 this state of affairs persisted in all the countries 
that were at war. 

In Germany, where bankers’ profits from the war 
of 1870 had risen to giddy heights, banks were 
among the small number of concerns who made no 
profit right from the first year of the war. In France 
the big banks were obliged to reduce their dividends 
considerably below what they had been paying during 
the last years preceding the war. Even in England, 
where industry and shipping were enjoying a veritable 
boom, the dividends paid by banks decreased. 

The Morgan Loans 

The picture is altogether different when we turn 
to neutral countries, who soon began to take a part 
in furnishing war supplies. And here an important 
part was played by banks. In Holland, Sweden 
and Spain they made enormous profits in financing 
supplies. But the United States comes easily first in 
the profits accruing to “neutral” financiers. 

John Pierpont Morgan, junior, whose father, the 
great John Pierpont, had died a year before the war, 
was the first to realize the -unrivalled opportunities 
offered. He immediately set out, by providing 
generous credits, to corner this particular market. 
He lent 12 million dollars to Russia, and he was 
ready to offer France a credit of 100 million dollars 
to be spent in the United States. Then the Washiagton 
Government stepped in, Mr. Bryan declarmg that 
loans to belligerents were incompatible with the spirit 
of neutrality. 



The Allies were faced with a dilBcult situation, for 
American goods were indispensable. France and 
England paid in bullion for what they got so long as 
they could, but this was not possible for long. Nor 
was it possible for them to pay in pounds or francs 
without weakening the exchange value of their 
currency. Other means had to be found. At the 
beginning of the war America was a substantial 
debtor to Europe, and by liquidating this indebted- 
ness the Allies could raise funds in the United States 
in a manner to which Washington could make no 
objection. Accordingly they sold the American bonds 
they held, these for the most part passing through 
Morgan’s hands. Morgan was after all able, in spite 
of government opposition, to arrange the issue of 
some small loans, but these were so small as to be 
practically negligible. 

After long efforts, England and France succeeded 
in overcoming the opposition from Washington. On 
March 31st, 1915, President Wilson made a statement 
on the government’s policy regarding loans which 
gave the desired loophole. He admitted that the 
government had been aware of credits having been 
provided for belligerents ; but although disapproving 
of them the government did not feel entitled to 

His meaning was obvious. From now onwards 
loans were permitted. Morgan, who meanwhile had 
become agent of the British Government for the 
purchase of war material, offered a loan to England, 
but on such stiff terms that the treasury hesitated 
to accept. Difficulties also arose over another loan. 



In conjunction with the National City Bank and 
the First National Bank, Morgan was to issue a 
50 million dollar loan for France. The three banks 
themselves took up half the loan. When, however, 
they tried to get the public to subscribe the other 
half, only a little over a million dollars were forth- 
coming.^ This serves to show the scepticism and 
lack of interest in the European War shown by 
American capitalists at that time. 

It was only later when war exports were in full 
swing that Americans realized what good business 
the war was for them and were in consequence 
prepared to invest their capital in it. Morgan him- 
self was stiU hesitant. He thought it impossible 
to issue a loan for more than 250 million dollars 
on one occasion. Financial experts of the Allies, 
however, pointed out that in such matters big 
figures inspire more confidence than small ones. 
At the start 1000 million dollars had been sug- 
gested. The Americans refused to go so far, but 
in the end they agreed that half this sum might 
be possible. 

So in October 1915, under Morgan’s aegis, a joint 
loan to the French and English Governments of 
500 million dollars was arranged with a group of 
American bankers. From this moment war business 
flourished in the States and everybody seemed to be 
making money. Credits followed each other at ever 
shorter intervals. Up to the time of America’s entry 
into the war the Allies had borrowed 2500 million 

^ Lucien Petit, Histoire des finances exUrieures de la France pendant la 
grande guerre, Paris 1929, p. 339. 



dollars, the greater part of their debt having been 
contracted under Morgan’s auspices. 

Pierpont Morgan did not fail to let it be known 
that he received no remuneration for having acted 
as intermediary in the negotiation of these loans. 
But we should make a mistake in thinking that he 
had gained nothing by all these transactions. It is 
true that the purely financial profits he made were 
less important than what he received for placing 
orders for munitions and the dividends he drew as 
a large shareholder in the various armament firms. 
But the profits he drew from his banking business 
with the Allies were far from negligible. The 500 
million dollar loan contracted in autumn 1915 brought 
to the group of bankers, at whose head Morgan was, 
a net profit of 9 million dollars, for they bought at 
96 and sold to the public at 98. Of this sum, how- 
ever, Morgan’s firm only received 66,000 dollars. 
Again, in 1917, the French Government paid to 
Morgan’s and other banks a commission of 1,500,000 
dollars, and a further million in 1918. 

Besides the issue of loans there was another source 
of profit; the purchase and sale of American stock 
which the Allies surrendered so that they could buy 
munitions in the States. It is estimated that in the 
course of the war some 2000 million dollars passed 
in this way through Morgan’s hands.^ Even if the 
commission was very small, transactions of such dimen- 
sions would give him an influence on the stock 
market which would carry very real advantages. 

^ Clyde William Phelps, The Foreign Expansion of American Banks, 
New York 1927, p. 1 19. 



Those who had imagined that with the death of 
the old John Pierpont Morgan the great days of the 
bank were over, were completely deceived. The 
70 million dollars — leaving aside the art treasures — 
which the old man left in 1913, was probably at 
least doubled in a few years by his son, and the 
power of the bank was greater than ever. 

The State becomes its own Financier 

The situation, however, underwent a change when 
the United States entered the war in the spring 
of 1917. It is true that supplies to Europe were 
far from diminishing, and the Allies continued to 
borrow with both hands from America. But the 
heyday of unlimited war profits was over. An ally 
could hardly take advantage of the situation in the 
same way as a neutral. The Washington Government 
abandoned the old American principle of economic 
liberty, and all those branches of business which 
were of essential importance for war were subjected 
to its control. It supervised — though, it must be 
admitted, not very thoroughly — the prices of muni- 
tions and intervened also in matters of transport, in 
which Morgan had a large interest. The result was 
a considerable reduction in Morgan’s profits. 

Private loans to finance the purchase of munitions 
now diminished in importance, as the American 
Government offered the Allies long-term credits, 
working in collaboration with the Federal Reserve 
Bank, an institution which Morgan had in vain 
tried to attach to his own organization. During the 



nineteen months between America’s entry into the 
war and the Armistice, her government lent her 
Allies in Europe 6900 million dollars and after the 
Armistice another 2500 million. Private credits 
during the same period amounted to no more than 
1500 million. 

In financing America’s own military expenses the 
bankers were still more frozen out. The five American 
war loans aggregating 21,000 million dollars were 
not the work of the banks, but were in the truest 
sense national loans. Naturally the bankers saw 
themselves obliged as good patriots to subscribe to 
the loans, but their situation was not the same as 
it had been in former wars. They were not asked 
for their advice; they were not in a position to 
make their terms, and they had no real opportunity 
of making profits. 

Precisely on account of its previous activity, 
Morgan’s bank was the hardest hit by this new war- 
time regime introduced in Washington. Morgan 
himself did his best, but in vain, to get President 
Wilson, whom he visited personally, to relent. It 
was not that the new order of things was aimed 
specially at Morgan; but his privileged position no 
longer existed. Morgan did not succeed in becoming, 
as he had hoped, the official banker to America 
at war. 

The turn things took in the United States is 
characteristic of the new phase of war finance which 
set in all over the world. Henceforward only wars 
conducted by minor powers, or now and again a 
colonial war, could offer bankers the opportunities 


114 the profits of war 

they had enjoyed of old. In big wars and in their 
own countries the “war banker” seems to be finished 
for good. It is the State itself which now finances 
its wars. In the middle of last century it was a 
question of confidence: a long time elapsed before 
the State succeeded in winning the trust which the 
moneyed classes were ready to put in the bankers. 
Nowadays the cost of war is far too high for any 
financier or even a group of banks to be capable of 
coping with it. 

It might be thought that a government could get 
all the bankers of the country together and hand 
over to them the task of financing a war. But public 
opinion would oppose a monopoly of this sort, par- 
ticularly in time of war. Bankers have for too long 
made profit out of wars for anybody to believe them 
disinterested. To make war with the help of bankers 
— that means to make war in the banker’s interest. 
That is the prevailing point of view to-day even in 
the most capitalist of countries. 

It may happen again that in a case of pressing 
need a government may find itself obliged to offer 
concessions to private financiers, particularly to 
bankers of neutral countries. It is none the less true 
that the profits from war which in two epochs — the 
Renaissance and the nineteenth century — flowed so 
abimdantly into the bankers’ pockets, are not likely 
to be realized again. 


The Early Armourers 

In history, the first to make profit from war were 
those who carried arms ; next were those who financed 
armaments, and only much later those who made 

This sequence does not seem altogether natural. 
The armourer’s is one of the most ancient of trades 
and one might suppose that wealth and power were 
from an early date derived from it. But this was far 
from being the case. From occasional allusions in 
literature, we know that in the ancient world some 
armourers were well-to-do. We are told, for instance, 
that Sophocles was the son of Sophillus, a rich 
Athenian armourer. But neither in Greece nor 
Rome were great fortunes made in armaments. And 
in the Middle Ages the armourers were respectable 
artisans without any great ambitions. In some towns 
highly skilled specialists arose, Seville, Toledo, Milan, 
Nuremburg and Liege achieving a reputation for 
exceptional workmanship. But even here, the master 
forgers attained a comfortable bourgeois station, but 
no more. 

It was not the manufacture but the trade in arms 
which made the first substantial profits. This trade 

was in part carried on by mine-owners, who provided 



armourers with raw material and handled the finished 
products. We have already seen how the great metal- 
dealers of the fifteenth and sixteenth centuries, such 
as Jacques Coeur and Jacob Fugger, traded in arms. 
Right from the start this commerce was characterized 
by its extreme internationalism. Jacques Cceur was 
accused of having, though a Christian, provided the 
Turks with copper and other raw materials. Jacob 
Fugger, banker to the Pope, also provided them with 
arms during the Turko- Venetian War. 

Towards the end of the sixteenth century the 
English cannon foundries were already exporting on 
a considerable scale. Four-fifths of the cannons made 
in England were secretly shipped abroad.^ Then 
Queen Elizabeth stepped in and gave two of her 
favourites a monopoly in these exports. It was in 
Sussex that armourers at last began to amass con- 
siderable fortunes. In the seventeenth century the 
Swedish foundries, managed partly by Dutch immi- 
grants, provided half Europe with cannons. In 1 704 
in Upper Silesia, the merchant Georg von Giesche 
was given a concession by the Emperor to exploit the 
zinc mines, and he thereupon started to cast cannons 
in brass. In the same year, Jean Martin Wendel, 
founder of the line of steel magnates who still bear 
that name, entered the armament industry in Lorraine 
by buying the already important iron works of HuUin. 
A little later, in the Sarre, began the activities of the 
Stumm family, who were later to specialize in the 
manufacture of armour plating. The Luxemburg 
region, rich in iron, became one of the chief localities 

^ Sombart, Le Capitalisme moderne. 


of the arms industry, the fortress of Luxemburg pro- 
viding one of the best customers. During five years 
of warfare, between 1756 and 1761, one maker alone 
provided the fortress with 4650 cannonballs, 1 14,000 
bombs and 4700 shells, which are record figures for 
the time.^ 

The lack of scruple shown by the armourers in 
selling war material to anybody who could pay for it, 
soon began to shock the governments of Europe. 

In France, under Louis XIV, Colbert started the 
manufacture of arms by the State, the organization 
extending from the metal works of the Dauphine to 
cannon and other munition factories in every pro- 
vince of the country. In other countries, govern- 
ments dared not go so far, and confined themselves 
to licensing and controlling the industry. But in 
nearly all countries, during the seventeenth and 
eighteenth centuries. State factories were being 
equipped for the manufacture of musketry and 

The younger military powers quickly set to work 
to organize the State manufacture of arms on a large 
scale. Soon after its foundation in 1722, the Prussian 
musket factory of Spandau was already employing 
more than 250 workmen. In Russia, at the same 
period, a factory at Sestroreck which had been 
started by Peter the Great was employing nearly 
700 workmen, while at the factory of Toula were 
500 families. Compared with these big State con- 
cerns, the private manufacture of arms was on a 

1 Die Schwereisenindustrie im deutschen Z^llgehiet, herausgegehen wm 
Deutschen Metallarbeit&r-Verband. Stuttgart 1912, p. 45. 


modest scale till towards the end of the eighteenth 
century. The richest of the armourers were those 
building ships of war. Even so late as Napoleonic 
times. State manufacture predominated on the 

Krupp^s Early Difficulties 

It was only in the course of the nineteenth century 
that the private manufacture of armaments acquired 
real importance. Economic liberalism emanating 
from England paved the way for the private trader 
in arms as in all else. The principle of industrial 
liberty and the behef that the private manufacturer 
stimulated by the desire for gain was capable of 
greater output, gradually pushed State manufacture 
into the background. But it was a slow process, nor 
was it accomplished without bitter opposition. In 
any case, the years of peace which followed the 
Napoleonic wars were hardly favourable to the arms 

At the time of the accession of Napoleon III in 
the middle of last century, a new phase set in. Great 
names came to the fore, names which have since 
come to symbolize the whole armament business. It 
is characteristic of the concerns we are now consider- 
ing that none of them began with the manufacture 
of arms. In England a factory was founded in 1846 
by Armstrong for mailing hydro-electric machines, 
and it was only nine years later, during the Crimean 
War, that he started making guns. The steel works 
of Vickers began in 1828, but it was not till 1869 that 


it started making steel for guns. It was the same on 
the Continent. Krupp began with the manufacture 
of miscellaneous steel utensils, and it was thirty years 
before he began to make rifles and guns. Schneider 
began with steam engines and twenty years later 
went on to armaments. 

The oldest of this “big four” is Krupp’s. In the 
first decades of its existence, however, it was far from 
being a flourishing business. A young man of the 
small town of Essen, who had inherited from his 
grandmother a fortune of 120,000 thalers, started a 
foundry in 1812. Possibly he was influenced by the 
occurrence of the Napoleonic wars, which favoured 
the iron industry, the Continental Blockade having 
deprived the Continent of English iron and steel. 
Everywhere experiments were in progress to produce 
cast steel as good as that which came from England. 
Both among serious technicians and among charla- 
tans, there was the keenest competition to invent new 
processes for steel, much as there had been among 
alchemists a century earlier for the manufacture of 
gold. Friedrich Krupp also entered the lists, but 
his efforts met with disastrous failure. After a few 
years the great family fortune was lost, and the 
Kxupps had to leave their grand house at Essen to 
live in a keeper’s lodge. 

After the early death of Friedrich Elrupp, his son 
Alfred, the real founder of the armament works, had 
his work cut out to keep himself and the family 
afloat. The work of the factory was done by 
this boy, still in his teens, with six workmen 
under him. It consisted of making small rollers 



used by jewellers and for the manufacture of coins, 
also tailors’ implements and other small objects. 
For ten years the annual turnover averaged 2000 

It was only in 1843, after a year and a half spent 
studying in England, that Krupp ventured on the 
manufacture of rifle barrels of cast steel, and this was 
rather the caprice of an engineer than the serious 
project of a business man. Krupp then sent a sample 
of his work to the Prussian minister of war, who 
replied that Prussian arms were already so good that 
they needed no improvement.^ After this rebuff, 
Kjupp sent his model to the minister of war in 
France. This time the answer was polite and even 
appreciative, but still no order was placed. The 
real reason for this failure was the high price Krupp 
was asking. 

Neither did Krupp have any luck in his first 
attempts at the manufacture of guns. The Prussian 
Government, it is true, were now more agreeable, 
but they immediately asked for a gun to be cast of 
such dimensions that Krupp had not the means to 
tmdertake it. Two years later he had completed his 
first field-gun. He debated a long time whether he 
should send it to Berlin or Paris. In the end he 
decided for Berlin, but the revolution of March 1848 
intervened and the gun was for long left neglected at 
the Spandau works. 

^ Dietrich Baedeker, Alfred Krupp und die Entwicklung der Gusstahlfahrik 
in Essen, and ed. Essen 1912, p. i8. Cf. Richard Lewinsohn, A la 
conquete de la rkhesse. Paris 1928, p, 151 seq. 



The Schneiders 

Compared to Krupp’s vicissitudes, the Schneiders 
seemed to be favoured by fortune from the start. In 
1836 the brothers Frangois- Adolphe and Joseph- 
Eugene Schneider, of Alsatian extraction, bought the 
foundry of Le Creusot, which had for long been a 
centre of the armourer’s trade. Already under 
Louis XIV a royal foundry was in existence at Le 
Creusot, which provided cannons for the French 
armies. In 1784 a private company was founded 
there with Louis XVI as one of the bigger share- 
holders. These works were among the principal 
French armament factories during the Napoleonic 

From 1815, however, the manufacture of guns was 
stopped, and the other goods manufactured were not 
sufficiently profitable. The business changed hands 
many times ; amongst others some English capitalists 
tried to make it pay, but without success. There were 
three financial failures ^ in the course of twenty years, 
costing the owners some 30 million francs. It was 
thus far from appearing to be a gold mine which the 
Schneiders were offered, and it needed a good deal 
of courage to undertake it after its third crash. 

The purchase price of 2,600,000 francs which the 
Schneiders paid was not perhaps very high, although 
people did not in those days think in millions so easily 
as they do to-day. But where did they get the money 

^ Viscomle G. d’Avenelj Le Mkhanisme de la Vie Moderne. Paris 1922, 
Premi^TC S^rie, p. 129. 



from? It did not come from their family. They 
themselves were in their early thirties. One of them 
had up to then been an employee in the bank of 
Seilliere in Paris; the other had been manager of 
some steel works near Sedan, a business which was 
under the control of the same bank. Immediately 
on taking over the Le Creusot concern, they turned 
it into a company with a capital of 4 million francs, 
and this new firm of Schneider Freres et Compagnie 
makes it clear that they had anonymous associates. 
We may be fairly sure that the brothers did not them- 
selves contribute much of the capital, and that behind 
them was the Seilliere Bank. 

In the time of Louis XV the Seillieres’ ancestors 
were already dealing in arms and controlled a cannon 
foundry. The head of the Parisian bank, too, did 
considerable business in supplies to the army. For 
a long time the Seilliere family had influence at Le 
Creusot and to this day it is represented on the board 
of directors. 

Although neither the original brothers nor their 
descendants have ever held a majority of the shares, 
the Schneiders were from the first the real controllers 
and the acknowledged heads of the business. Eugene 
Schneider with his technical perspicacity at once 
realized the great opportunities offered to industry 
by the introduction of steam, till then little used in 
France. Before long, the first steam-hammer erected 
on French soil began to work at Le Creusot. The 
first French locomotive was made there, and the 
engines for the first French steamboat. The manu- 
facture of arms did not yet play any part at all. 


However, it was not long before the Schneiders 
began to acquire political influence, indispensable as 
that is in the armament business. Already under 
the monarchy, Francois- Adolphe was elected to the 
Chamber of Deputies and after his death his brother 
Joseph-Eugene took his place. Danger threatened 
with the revolution of 1848, but the election of Prince 
Louis Napoleon to the presidency put Schneider’s 
on a secure footing. Schneider himself became an 
ardent Bonapartist, and was appointed minister of 
agriculture and commerce. After the coup d’dtat of 
Napoleon III, Schneider became a member of the 
Corps Legislatif and soon after its vice-president. 

The year 1852, which brought Schneider such 
political honours, brought also material success; for 
an order for four warships was placed with his firm. 
The year following, the capital of the company, 
which from 4 million francs had already been increased 
to 6 million, was now increased again to 14 million. 
A year later again, Eugene Schneider was made 
Governor of the Bank of France and a little later 
Grand Officier of the Legion of Honour. Once more it 
may be observed how closely honours are connected 
with business. During the Crimean War, orders for 
warships and floating batteries came in fast, and the 
war against Austria brought in more. In 1863 the 
capital was increased to 18 million francs. Business 
flourished, particularly in the building of ships, 
bridges and locomotives. Schneider began to take 
an interest in land warfare, too, but his works were 
not yet sufficiently equipped to do much in this 



Krupp's Overtures to France 

Meanwhile Krupp with astonishing tenacity per- 
sisted in his efforts to gain a footing in the French 
arms market, realizing the excellent opportunities 
which France offered under the Second Empire. 
And he made it a point of honour to get the British 
navy as a customer to prove in this way that he could 
successfully compete with British engineering. He 
sent his latest models of artillery to exhibitions in these 
two countries. To impress prospective customers, he 
exhibited blocks of solid steel of startling dimensions. 
A wagon broke down under the weight of one of these 
huge blocks as it was being carried through the streets 
of Paris, and when it finally reached the pavilion 
where it was to be shown it sank through the floor. 

But in spite of this excellent advertisement, cus- 
tomers held off. Krupp presented his exhibition 
models to various sovereigns, hoping that orders 
would follow. But the international arms market 
was difflcult to penetrate. Finally, a serious customer 
appeared, and six guns of the latest type shown at the 
Paris exhibition were ordered for Egypt. Another 
order followed, this time for thirty. But still France 
made no response to Krupp’s overtures, though he 
left no stone unturned in his efforts to get Napoleon HI 
interested in his guns. He was, of course, by no means 
the only one : the Emperor, who had been called the 
artilleur sur le trdne, was, in fact, surrounded by those 
who had engines of war or explosives to sell. 

Among the latter was a young Swede called Nobel, 



who was cariying out experiments with new explosive 
substances. Alfred Nobel came of a well-known 
family of engineers who had been successfully engaged 
in the manufacture of arms. His father had made 
money in Russia at the time of the Crimean War, 
selling mines and torpedoes. But years of peace had 
altogether ruined the Nobels, and the sons had to go 
abroad to try to raise some fresh capital. Napoleon III 
liked to patronize foreign scientists and, though he 
did not open his own purse, he sent the young 
engineer with a recommendation to Pereire, the 
banker, who provided 100,000 francs for the erection 
of a factory in Sweden. This gave Nobel a start, and 
the deadly effectiveness of his explosives was soon to 
be seen, as they were used in the Franco-Prussian 
War — though by the Germans. 

Krupp’s aim in Paris was twofold. He wanted 
to get orders and also capital. The sum he was trying 
to raise was, of course, on quite a different scale to 
that ob tamed by Nobel. In 1865 he was trying to 
obtain a credit of 20 million francs. He had already 
negotiated with the Credit Mobilier founded by the 
brothers Pereire with a view to establishing a steel 
foundry in France, but nothing came of this project. 
The bank he now approached through Haas, his 
Paris agent, was none other than Seilliere’s, who, as 
we have seen, was behind Schneider’s, and with 
whom Krupp had for years been doing business. 
Haas made his proposal with all the arts of a business 
man. “Where could France better invest her money,” 
he asked, “than in a foreign country where peace 
was reigning, most of all in the armament industry 


which will be flourishing when other industries are 
sufiering?” ^ But for so large a credit Krupp did not 
offer sufficient security or right of control, and for 
the time being these negotiations too fell through. 

Nevertheless, Seilliere had shown considerable 
goodwill, and Krupp did not hesitate to play this 
card in Berlin. He went to Bismarck and told him 
that the French had offered him all the money he 
needed, but that, if he accepted, his business would 
become, at all events partially, French property. If 
the government wanted Krupp’s to remain Prussian, 
it would have to come to the rescue with financial 

Bismarck was already thinking of a war against 
Austria and he fell into the trap, and without any 
formalities Krupp was given 1,500,000 thalers on 
account of new orders for guns. This, however, did 
not prevent Krupp from going back to Seilliere, from 
whom he got only a few days later a credit of 4 million 
francs. This gives an idea of the financial manoeuvres, 
both national and international, which Krupp resorted 
to at a time when the political tension in Europe was 

In selling his goods, the methods and principles 
adopted by Krupp were much the same. Never had 
a more zealous advocate been found for the cause of 
the internationalism of the arms market. It is true that 
he had been neglected by his own country. Even 
up to 1870 Roon, the Prussian minister of war, was 
sceptical about Krupp’s cast-steel guns. He remained 
in favour of bronze and did all he could to oppose 

^ Wilhelm Berdrow, Krupp, 



the introduction of steel. But even later, when he 
had found favour at Court and was highly esteemed 
by Bismarck, Krupp did not in any way change the 
manner of his dealings. 

To sell his goods in France, Eirupp flattered the 
French by giving them the credit for having helped 
to start his factory. In Paris he circulated the story, 
a story quite unsupported by any document, that his 
father had started his factory as the result of a com- 
petition organized by Napoleon I, in which a million 
francs was offered to anyone who succeeded in pro- 
ducing cast steel which could rival the English. Ill- 
fortune had deprived him of the prize, for, by the time 
it had been earned, the domination of France was at 
an end. The factory which had so cruelly been 
prevented from making arms for the first Napoleon 
was at least to make them for the third. And so on ; 
but still no deal was clinched. An order for 300 cast- 
steel guns was almost placed when the French author- 
ities at the last moment decided to continue making 
their guns of bronze. A few years later Alfred Krupp 
tried once more, with some new models, to interest 
Napoleon III, but once again he failed. 

In 1868, when relations between Paris and Berlin 
were already getting strained, Krupp’s Paris agent 
sent the Emperor a report on the trials which had 
been carried out at Essen by a Russian general and 
a Prussian military commission, hoping that this 
would whet his appetite. This was followed by the 
latest catalogue sent by Krupp himself to Napoleon 
with a covering letter. “I cherish the hope,” he 
wrote, “that the four last pages, particularly those 



showing guns of cast steel which I have manufactured 
for various high governments in Europe, will hold 
for a moment Your Majesty’s attention.” But all 
efforts were unavailing. Marshal Leboeuf, an advo- 
cate of bronze, made an unfavourable report on 
Kjupp’s guns. But, however things turned out, it 
was no fault of Alfred Krupp’s if in 1870 the French 
army was not equipped by him. 

Essen in Full Swing 

The fact that Krupp sold guns as readily to 
Prussia’s enemies as to Prussia herself was already 
shown by the war of 1 866. There can be no question 
of Krupp’s haviag been surprised by the turn of 
events, for it was an open secret, months before the 
opening of hostilities, that the struggle for supremacy 
between Prussia and Austria was to be decided by 
force. Alongside financial preparations (the loan 
arranged by Bleichroder), military preparations were 
in full swing. In both camps intensive arming was 
taking place. 

At Krupp’s, orders for guns were so great that 
deliveries were delayed in spite of the fact that the 
number of workmen had already increased between 
1862 and 1866 from 2000 to 8000. Prussia, it is true, 
insisted on prompt execution of her orders for which 
large sums of money had been advanced. 

Austria had ordered 24 heavy guns, and her allies, 
the South German States, had also made haste to 
place their orders. Baden and Wiirtemberg came to 
Eirupp’s for guns, and as late as April 1866 Bavaria 


ordered 48, but could not get the order executed, as 
Krupp’s was already working to the limit of its 

It was of course known in Berlin that Krupp’s 
were working for both sides. A ban could easily have 
been placed on this exportation, or arms could have 
been seized on their way to Prussia’s adversaries. It 
was feared, however, that such measures would pre- 
maturely aggravate the situation. The Prussian 
Government confined itself to making a confidential 
request to ELrupp not to send any guns to Austria 
without authorization from the minister of war. 

But Kxupp answered without committing himself: 
the next deliveries were only due in some months’ 
time, and he would certainly not send a single gun to 
Austria without previously informing the King. But 
as for the undertaking asked for he could not see his 
way to give it, for it would involve a breach of con- 
tract with his customers. In a letter addressed to 
Roon he expressed himself bluntly: “I know very 
little of the political situation, I quietly pursue my 
work, and if I cannot do it without disturbing the 
harmony between my love for my cotmtry and my 
commercial honour I would rather abandon it alto- 
gether. I could seU my factory and be a wealthy 
and independent man.” 

Roon was far from being a meek man and his 
geniality was by no means excessive ; yet he swallowed 
Krupp’s rebuff. Apparently he did not wish to 
quarrel with him since mobilization was then immin- 
ent. This success encouraged Krupp to attack Roon 
further. He went to Bismarck and complained of 




the insufficiency of Prussia’s heavy artillery, and he 
even intended to go to the King with his denuncia- 
tions. As usual in such cases, he had an eye to his 
own advantage. After he had succeeded in disgracing 
some of the most capable people in the ministry of 
war, Krupp made a sudden demand for money, 
saying that he had urgent need of 2 million thalers. 

This rapacity is surprising. During the last few 
years Krupp had made more money than ever from 
his business. Apart from orders from home, and from 
Austria and the South German States, he had secured 
profitable contracts with many other countries, both 
in Europe and elsewhere. Above all, Russia had 
become a customer and had placed orders amounting 
to a million and a half thalers. Krupp’s private 
fortune was at this time already estimated at between 
10 and 15 million thalers. Near Essen, he had built 
a sumptuous country house, the Villa Hugel, in 
magnificent grounds, where he lived in grand style 
entertaining sovereigns and celebrities of all countries. 
He kept open house, and foreign soldiers who came 
to visit the steel works were always given a particu- 
larly cordial welcome. 

All this needed money. Still more was needed for 
the new plant and extensions of the works which 
Krupp was always planning. Though now over 
fifty, he was just as enterprising as he had been in 
his youth and as his father had been before him. 
The works and the town of Essen were a vast field 
for his energy, and what had been an out-of-the-way 
little place on the banks of the Ruhr, became a great 
centre of modem industry over which Krupp reigned 



supreme. This huge expansion was not achieved 
without financial troubles. Krupp was always known 
for his high prices, but, on the other hand, his costs 
were on such a scale that monetary difficulties were 
constantly recurring. Nevertheless, he made it a 
point of honour to refuse bankers’ credits. He did 
not always keep to this principle, but he sought as 
far as possible to avoid recourse to professional 
financiers. If he stood in need of money, he regarded 
it as the duty of the State to come to the assistance of 
so important an undertaking as his. 

So it was after all in keepiug with his principles 
that he applied once more to Berlin for a subsidy. 
The Prussian Government on the eve of a war, financed 
by roundabout if not illegal means, was not itself 
in a position to pay the sum Krupp demanded. It 
was, however, anxious not to offend the manufacturer 
of arms whose services would be so badly needed in 
a few weeks’ time, and Roon made haste to inform 
Krupp that he could get an advance from the govern- 
ment bank, the Preussische Seehandlung, for any 
amount up to a million thalers. 

This proposition enraged Krupp, who addressed 
himself to the King, threatening once more to sell 
his works unless he was immediately given the money 
he had asked for. The King answered in his most 
paternal style, explaining that Kxupp had already 
received one million on account of future deliveries, 
and that a further million was now offered him in 
the form of a bank credit. In the end, Krupp con- 
descended to accept the money in this form, but not 
without regarding it as “shameful” that the money 



was to be advanced by a bank instead of its being 
provided by the treasury. All this took place a 
few days before the mobilization against Austria. 

The Prussian victory was not without its advantages 
for Krupp although his guns had not proved an 
unqualified success, there being even some serious 
accidents when guns exploded. In the years which 
followed this war, armaments grew vigorously. After 
a trial in competition with other guns, Krupp obtained 
a large order for the Prussian navy, which till then 
had procured its guns from Armstrong’s. All the 
same, competition was continually increasing. New 
armament firms came into being. Moreover, the old 
question, bronze or cast steel, was not yet definitely 

In France, Schneider’s was developing fast. At its 
head, Eugene Schneider had been since 1867 presi- 
dent of the Corps Ugislatif, and continued to have the 
ear of the Emperor. It was, however, only in the 
field of naval armament that Le Creusot was in direct 
competition with Krupp’s. 

Arms in the Franco-Prussian War 

As regards land warfare, it was only during the 
Franco-Prussian War that the interests of Khupp and 
Schneider entered into rivalry. However, neither of 
them held a predominant position in the arms market 
during this war, the part played by Krupp being 
even astonishingly small. Right at the start of hos- 
tilities he offered to provide a million thalers’ worth 
of guns, but this offer was declined in Berlin. Nor 



were his other proposals more successful. One was 
to employ the mille limes he had been awarded three 
years before at the Paris Exhibition for the bombard- 
ment of the chief French forts. The other was a gun 
designed to shoot at the balloons over Paris. 

All the same, the number of guns made at Essen 
rose to double what it had been the year before. And 
even during the war a quarter of this production, 
that is a hundred guns, were exported abroad. 
Nearly 9000 workers were now employed at the 
works, the business flourished, and, as a visible 
sign of the wealth and power of its head, a 
luxurious palace was now erected on the hill near 
Essen where the Krupp family lived in altogether 
princely style. 

But the real war profits came later. Before peace 
was concluded, Krupp submitted to Berlin the design 
for a new field-gun. There was opposition to be over- 
come at the ministry of war, but after protracted dis- 
cussions, Krupp finally in 1874 was able to reap his 
harvest. For it was then decided that German field 
artillery units should be equipped throughout with 
Krupp’s new gun, 2000 of which were ordered to be 
delivered as early as possible. 

For Schneider too the war of 1870 inaugurated a 
new period of development, though it provided 
situations that were both dramatic and dangerous. 
The manufacture of guns, so long interrupted, was 
renewed in all haste to replace losses in French 
artillery. During the war, Schneider provided 23 
batteries of bronze guns, 2 batteries of cast-steel guns 
and 16 batteries of machine-guns, in all 250 pieces. 



The plant installed for this production at Le Creusot 
formed the foundation of Schneider’s future position 
in the French arms industry. 

From the political point of view, things did not 
go so well. Eugene Schneider presided at the 
tumultuous sitting of the Chamber on September 4th, 
1870, when the parliamentary assault began, follow- 
ing the capitulation of Napoleon III at Sedan. With 
difficulty he just managed to save himself, but was 
forced to retire from the political arena. In the hour 
of catastrophe the trusted Bonapartist, Schneider, 
succeeded in finding some flattering words for 
Gambetta, and so long as the war lasted, no one 
dared touch Le Creusot. But when the Republic 
was being organized, the horizon became very 
clouded indeed. 

Thiers, the President, cherished the idea of creating 
a great national organization for the State manu- 
facture of arms, which would have involved the 
nationalization of Le Creusot. But before it was ever 
precisely formulated, the idea was abandoned. The 
Republic established itself as a bourgeois institution, 
respecting private property as scrupulously as had the 
Second Empire. So Le Creusot remained a private 
enterprise, and to mark the brilliant future reserved 
for it under the Republic, its capital was augmented 
in 1873 to 27 milHon francs. 

On the French side, the war of 1870 was char- 
acterized by another fact of significance for the 
armament industry. This was the close collaboration 
of American manufacturers. Already in the last 
years preceding the war, 145,000 carbines had been 



supplied by the American firm of Remington, which 
at that time was as famous for its arms as it was later 
to be for its typewriters. Remington was thus on 
good terms with the French Government when war 
broke out, and when in the course of it French 
sources of supply proved inadequate he was entrusted 
by the military authorities with the task of buying 
arms in America. His task was similar, if on a much 
smaller scale, to that of Morgan during the last war. 
He received a commission of 5% on all purchases. 
Later it was reduced to 2|-%, but even at that figure 
his profits were by no means meagre.^ 

Remington did not by any means confine himself 
to the supply of his own products, but set out with 
considerable ability to get war material over to 
Europe as speedily as possible. Acting through an 
intermediary, Thomas Richardson, he bought 37,000 
rifles which the American army had left over from 
the Civil War and which it wished to get rid of. 
Superficially repaired, they were then shipped off to 
France. The American navy gave Remington 9 guns 
on the condition that they were shortly to be replaced 
by new ones, and also sold him 10,000 rifles regarded 
as defective, but which were in reality still usable. 
His most remarkable achievement, however, was to 
enlist the services of one of the United States arsenals. 
This enabled him to deliver in a short time 1 7 million 
rounds of ammunition, nearly six times the total stock 
held by the American army. 

It was in fact a most lively trade in arms new and 

^ H. C. Engelbrecht et F. C. Hanighen, Marchands de Mort. Paris 

1934, p. 46. 


old, not altogether irreproachable politically, nor 
commercially always scrupulous in the matter of 
quality. But the goods were delivered and the 
profits taken. 

In order to increase the home manufacture of arms, 
the French Government, during the war, invited an 
American engineer, Benjamin Berkeley Hotchkiss, to 
start a factory in the Aveyron. Immediately after the 
armistice it was transferred to Saint-Denis. This 
arms factory, half American in origin, was the 
beginning of what was to become one of the most 
important French armament firms, which particularly 
in the manufacture of machine-guns has acquired a 
world-wide reputation. 

Armament Firms in the United States 

The great help which France thus got might be 
regarded as a return for the help she had given to 
America in former wars. Indeed, the struggle of 
America for independence was fought largely with 
French arms, and it might even be said that it was 
France that laid the foundation-stone of the American 
armament industry. 

In 1802 a young American who had emigrated from 
France, Eleuthere-Irenee Du Pont de Nemours, went 
back to his old country to try to raise capital to start 
a powder factory in the United States. Hitherto, 
this product had been supplied by the English, but 
they charged very high prices. Moreover, by sus- 
pending exports, they would at any time be in a 
position to weaken America’s defences. 



Du Pont submitted his project to the government 
in Paris, and Napoleon, regarding it as a way of 
striking at England, both economically and politically, 
gave his approval. The French Government worked 
out a design and supplied him with the necessary 
plant. On the other side, the President, Thomas 
Jefferson, authorized the construction of the factory 
on condition that it was not set up in a closely popu- 
lated locality. Thus, at the opening of the nineteenth 
century, the firm of E. I. Du Pont de Nemours was 
established in Wilmington, Delaware. This firm is 
still in the hands of the family, and in the course of 
four generations has developed into the biggest 
chemical concern in America and the biggest ammuni- 
tion works in the whole world. 

Edifying stories are told about the first Du Pont: 
how he scrutinized every order to ascertain its origin, 
whether it was compatible with the political interests 
of the United States or whether it was to serve some 
unworthy purpose. As a matter of fact, the arms 
and munition industry in America did not, at first, 
owe its success to orders for the supply of armies, 
though these were not lacking. It was only during 
the Crimean War that Du Pont’s really developed on 
the export side, when it provided munitions for both 
sides. In the early days it was the home market, 
providing for the needs of the private individual, 
which was the more important. 

During the time it was being colonized, that is up 
to the last third of the nineteenth century, the land 
of the United States was held in possession with the 
aid of rifle and revolver. Even after the Red Indians 


were finally exterminated or subjected, there remained 
the struggle of the whites amongst themselves for the 
possession of the soil. The demand for arms and 
munitions was extraordinary. In fact, the consump- 
tion of portable arms and ammunition by the 20 or 
30 milhon inhabitants of the United States towards 
the middle of the nineteenth century was several 
timYs as great as that required by the same number 
of Europeans. 

This tremendous consumption made a huge market 
for the now well-developed arms industry of the 
United States. The manufacture of big guns was 
left to Europe, but that of rifles, carbines, revolvers, 
and their ammunition constituted one of the first 
great independent industries. Among dozens of fac- 
tories, three provided household names: Colt, Win- 
chester and Remington. Colt made the first modern 
revolvers, masterpieces of workmanship, which though 
costing 200 dollars a piece, were widely used and 
gave a new aspect to the bloody skirmishes with the 
Mexicans and the Indians. Winchester produced a 
repeating rifle whose reputation quickly spread, 
extending from the revolutionaries of South America 
to the Arabs of North Africa. But it was Remington 
who developed the most solid and important export 
business with his famous carbines, superior in rapidity 
of loading to any type made in Europe. 

As an armourer. Remington’s most flourishing 
period was during the American Civil War. This 
very sanguinary war, which was in many respects 
decisive for America’s economic development, had 
a marked influence on the armament industry. 


Among other big business magnates, the old John 
Pierpont Morgan won his spurs during the struggle, 
and this by carrying on a trade in arms that was more 
than questionable. Acting in concert with a certain 
Mr. Stevens, he bought in the North 5000 carbines 
which were reported unfit for further use, paying for 
them 3|~ dollars apiece. These he sold for 22 dollars 
each to General Framont of St. Louis — ^in this war 
the generals having to procure their own arms. 
Later, when payment became due, the military 
authorities protested, but Morgan went to law and 
won his case in the court of first instance and again 
on appeal. On this deal his net profit was not far 
short of 100,000 dollars.^ 

The termination of the Civil War was a severe blow 
to the armament makers. So good an internal market 
for arms was not likely to return ; accordingly, manu- 
facturers turned their efforts to the export trade. In 
the years which followed. Remington alone sold half 
a million rifles in Europe, Africa and South America. 
Supplies for the Franco-Prussian War were succeeded 
by large orders in preparation for the Russo-Turkish 
War of 1877-1878. The general equipment of the 
Turkish army with over 400,000 Remington carbines 
was planned but fell through, owing to the heavy 
“rake oflF,” which the Turkish buyers claimed. On 
the other hand, the Turks gave Remington an order 
for 210 million rounds of ammunition, a quantity 
hitherto unheard of. Russia, too, placed orders with 
this firm. Remington executed his orders as promptly 

^ Gustavus Myers, Geschichte der grossen amerikanischm VermSgm. Berlin 
1923, vol. ii, p. 538. 


as possible. If some of the shipments to the Near 
East were delayed, it was because, in the meantime, 
a Cuban revolt had broken out against Spain, bring- 
ing in new orders for urgent delivery. 

Tears of Peace 

For the international arms industry, the last de- 
cades of the nineteenth century were a period of 
quiet and, if one may use the word, peaceful develop- 
ment. The world had indeed become dreadfully 
peaceful. Changes in the map of the world, for 
example in the partition of Africa, were effected by 
small military expeditions, and the quantity of arms 
employed was insignificant. For in colonial expedi- 
tions governments were inclined to count the cost of 
every round fired. For instance, before the conquest 
of the Soudan, Kitchener had to work out an exact 
estimate of the cost, and he was not to spend a peimy 

It was only right at the end of the last century and 
at the beginning of the present one that martial 
breezes began once more to disturb the political 
climate. The Spanish-American War, the Boer War, 
and then the Russo-Japanese War brought new orders 
to the armament makers. But even in the last of 
these wars the combatants did not succeed in firing 
more than a million rounds, whereas in the American 
Civil War, no less than five million had been fired. 

Since the political situation failed to create a suffi- 
cient demand for arms, the manufacturers set out to 

^ Lloyd George, War Memoirs, London 1933, voL i, p. 192. 



launch new technical devices which would necessi- 
tate continual re-equipment. Towards 1880 a 
Swedish engineer, Torsten Vilhelm Nordenfeldt, 
built the first effective submarine. For a century 
this had been tried but without any real success, and 
even now naval authorities were sceptical. The 
first country to buy one was Greece. 

In 1884 an American, Hiram Maxim, patented a 
machine-gun capable of firing 600 rounds a minute. 
This was an invention which no great power could 
overlook, and the purchase of these weapons took 
henceforward a larger and larger share of military 
estimates. The first country to acquire machine- 
guns was England, and English nationahty was at 
once conferred on their inventor. A partnership 
was formed between Maxim and Nordenfeldt, 
Maxim undertaking the technical management of 
the business. 

On the commercial side the master spirit of the 
concern was a Greek born in Asia Minor, Basil 
Zaharoff, a man who during the decades that followed 
became one of the chief figures of the international 
arms industry. Zaharoflf started trading in arms in 
1877 as Nordenfeldt’s agent in the Balkans, and there- 
after he exerted his salesmanship all over Europe. 
All the tricks of this strange trade were already 
famOiar to him when he came to London to work with 
Nordenfeldt. After the fusion of the latter’s business 
with Maxim’s, Zaharoff was soon well in with Maxim, 
who was the greater genius of the two, with a more 
promising future, and this association continued when 
Nordenfeldt broke off and started a new factory in 



Paris. It was ZaharofF who conducted negotiations 
when the Maxim Gun and Ammunition Co. was 
taken over by Vickers’ for the price of ^1,300,000. 
Maxim was swallowed up by Vickers’, but not so 
Zaharoff, who now became the guiding spirit in the 
fused concerns.^ 

About 1880 England was the centre of technical 
progress in the armament industry, but ten years 
later a new process was invented in Germany which 
enabled Krupp to produce armour plate decidedly 
superior to that produced by the Harvey process 
hitherto employed. 

The old Alfred Krupp did not live to see this new 
advance which attracted the attention of armament 
makers all over the world. He had died in 1887, 
being succeeded by his only son, Friedrich Alfred 
Krupp, a man by no means of the same calibre. He 
had inherited the 100 million marks which had been 
amassed in forty years of armament manufacture, but 
not the family ability, and from now on the business 
was really run by technical and business managers. 

The enterprise, however, which had characterized 
the business hitherto, did not decline. With a new 
invention, the interest of all the world must be excited 
to reap the maximum profits. Influential men and 
experts of all countries were at once invited to Essen 
and they were greatly impressed with the new steel. 
The great American steel concerns paid a very high 
price indeed for the American rights and used the 
process for the American fleet and also for that of 

^ R. Lewinsohn, Zaharoff, Paris 1929, p. 78. 



In 1896 Krupp’s started in earnest on marine 
armaments when they acquired the Gerrhania dock- 
yard at Kiel. The Kaiser’s policy of naval expansion 
ensured sufficient orders for this new branch of the 
business. Between 1896 and 1911, 9 capital ships, 
5 small cruisers, 33 torpedo boats and 10 submarines 
were built for the German navy at Krupp’s new 
yard, and to this must be added the orders exe- 
cuted for foreign governments. The rise of the 
German navy meant prosperity, too, for ship- 
builders of other countries. For the naval race 
that now ensued brought orders to Vickers’ and 
Armstrong’s, and in America to the U.S. Ship- 
building Co., which in 1904 was merged in the 
Bethlehem Steel Corporation. 

Growing Competition 

Army estimates, too, rose sharply from the begin- 
ning of this century. This in turn gave rise to a 
profusion of new armament firms amongst which was 
the keenest competition. In most of the great coun- 
tries, in addition to the old-established small arms 
factories, large factories were now equipped for 
making artillery pieces, and some of these new con- 
cerns could compare in size with the old armament 
centres of Germany, France and England. Russia, 
who hitherto had been the best customer in the 
international market, now placed most of its orders 
with the Poutiloff factory in Petersburg. The origins 
of this firm went back a long way, it having been 
founded in 1801. But it was only from 1868, when it 



was taken over by N. I. PoutilofF, that it began to 
acquire importance as an arms factory. 

Still more rapid was the growth of the Skoda works 
in Austria-Hungary. In 1859 Count Waldstein, a 
descendant of Wallenstein, had started a machine 
factory at Pilsen in Bohemia. This was acquired by 
E. Skoda in 1866, at a time when Bohemia was the 
theatre of war. From this time the works grew 
steadily, but it was only twenty years later that they 
were turned to the manufacture of war material. 
From 1890 guns were cast there. In 1899, shortly 
before Skoda’s death, the business was turned into a 
limited company with a capital of 25 million crowns, 
this being done to enable the works to be extended ; 
but Skoda still kept a controlling interest. Incident- 
ally, he received 2 million crowns from the banks 
who participated in the floating of the new company. 
His heir, Karl Skoda, continued the business, and 
was made a baron. Besides providing for home 
requirements, the Skoda works took a place in 
the international market. In 1913 an ammunition 
factory was added, and before the war the 
capital had been further augmented to 42 million 

During the war between Russia and Japan, the 
latter fought largely with imported weapons. But 
afterwards they set out to organize their own manu- 
facture on a very large scale. The Japan Steel Works 
were started with a capital of 15 million yen. This 
new factory was connected with Vickers’, from whom 
Japan had during the war obtained most of her 



Internationalism oj the Arms Trade 

It seems clear that during the two decades pre- 
ceding the last war there was a growing tendency to 
organize arms manufacture on a national basis. It 
was the wish of governments that for war prepara- 
tions as well as for war itself, their coimtries should 
be as far as possible free from the need of foreign 
help, and to this end they favoured the establishment 
of private arms factories within their frontiers. But 
that must not be taken to imply that the firms 
in question confined their manufacture to national 
requirements. In spite of the nationalism which 
supported them, the arms industry itself remained 
international in outlook, as much as, if not more 
than, any other industry. Those who ordered and 
could pay were generally served. Political considera- 
tions played a very small part indeed, and this at a 
time when foreign loans were largely subordinated 
to the policy of governments. To put in peace-time 
a ban on the export of arms to another country, 
would have been regarded as an unfriendly act. 
And if this argument was not sufficient, the arms 
makers found other reasons of a technical nature to 
overcome the objections raised from government 
quarters or to allay the hostile suspicions of the 

One day, when the old Krupp was reproached 
with having furnished the same guns to Austria as 
to Prussia, he answered the Kaiser frankly enough. 
“We cannot live on Prussia alone; for the next ten 



years we shall need at least 50 millions’ worth of 
orders. And if foreign countries place orders with 
me, I cannot decently send them goods of inferior 
quality.” ^ And so it went on. In time of peace the 
arms industry needed exports so as to increase its 
production and thus be more prepared to work 
on a war-time scale. Krupp’s, which at this time 
was regarded as the largest national armament 
concern and was constantly bemg favoured by the 
minister of war, did not show any embarrassment 
at publishing their export figures. On the con- 
trary, it was a proof of the excellent quality of 
Krupp products and a feather in the cap of German 
industry that all the world should come to Essen 
for their guns. 

In 1912, on the occasion of its centenary, Kxupp’s 
brought out a publication in which may be found 
exact figures of its exports abroad. Up to the death 
of Alfred Eirupp in 1887, 24,476 guns had been made 
at Essen, of which 13,910 were for foreign customers. 
Up to the end of 1911, the total had risen to 53,600, 
of which 27,300 had been sold to 52 foreign coun- 
tries. The proportion in both cases is about the 
same; in round figures, Krupp’s sold half its guns 
abroad. Just before the war the firm’s profits were 
34 million marks a year, and of this a considerable 
part certainly was derived from the sale of war 
material to cotmtries with whom Germany was 
shortly to be at war. 

The internationalism of the armament trade was 
not merely a question of a free export market. The 

^ Wilhelm Berdrow, Krupp. 


business was like any other, and all sorts of com- 
mercial relations developed in it. The arms merchant 
sought to steal his rivals’ customers, but if competi- 
tion got too keen for business to be profitable, then 
peace was made between the rivals and the market 
was shared between them. It was in the munition 
trade that this process went furthest. After cut-throat 
competition during the long period of peace, the 
ammunition factories in 1897 formed a cartel which 
embraced practically the whole world. Production 
was controlled and markets delimited, and, more 
important still, European and American manu- 
facturers agreed to standardize their export prices.’- 

In the manufacture of arms, particularly of rifles, 
there was also a tendency to form international 
cartels. But the variety of products and the diversity 
of the competing firms prevented the conclusion of 
any world-wide or durable arrangements. The banks, 
too, played a part iii this growing internationalism. 
Then again, armament firms often held shares in 
foreign armament concerns. This, of course, was 
not a peculiarity of the arms trade. What was 
remarkable was that the arms manufacturers treated 
their business just exactly as if they were dealing in 
knitted woollen goods or mirrors. 

The financial alliances among armament firms did 
not necessarily correspond with the system of political 
alliances. For instance, up to the period immedi- 
ately preceding the war, Vickers was in friendly 
relation with the German arms factory of Loewe & 

^ William S. Stevens, Indmtrial Combinations and Trusts. New York 

1913, p. 176. 


Co., and a member of the Loewe family was on 
Vickers’ board of directors. As well as their interest 
in Russian and Japanese firms, Vickers had a factory 
in Italy, a country at that time allied to the Central 

In the last decade before the war, when it was 
considered necessary to expand the Russian manu- 
facture of arms, French and English capital played 
the greatest part. None the less, Skoda’s as well 
as Schneider’s acquired a block of shares in the 
reorganized Poutiloff company. Moreover, the Aus- 
trian banks, chiefly the Credit-Anstalt of Vienna, 
provided money for the arms industry in Russia, 
while the Hamburg armourers, Blohm & Voss, 
helped to equip the Russian naval dockyard which 
Poutiloff acquired with Schneider’s aid. The rami- 
fications of the arms trade were endless, and one 
must not suppose they were inspired by secret polit- 
ical motives or the desire to spy out technical pro- 
cesses of other firms. It was just business, and 
business all the time. Politics were left a long way 


The last statement, however, requires modification. 
For the armament makers were quite ready for 
politics if it was to advance their business interests. 
Every good salesman recognizes it as his duty to 
increase consumption, and so it was with the 
traders in arms. But apart from technical in- 
vention, this could only be accomplished by painting 



the international situation in sombre colours and call- 
ing attention to the arms possessed by the opposing 

For this propaganda to be effective, it must be 
brought to bear on public opinion. The arms 
industry accordingly sought more and more to influ- 
ence the press and those poMtical parties and groups 
which could directly or indirectly advance their 
interests. Naturally enough, the trade expected a 
return for the money it spent in propaganda, and if 
it was not forthcoming, it could get angry. It has 
known how to reward, but also how to punish. 

When in 1901 an unexpected slump suddenly 
occurred in Germany, the newspapers who were 
spokesmen of the heavy industries demanded an 
order for several new warships. The head of the 
navy, Admiral von Tirpitz, did not immediately 
respond. Then Prince Salm, president of the Deutscher 
Flottenverein (Navy League), which was subsidized by 
the arms industry, wrote to Tirpitz: “With the 
order for new ships of war and the resulting revival 
of commerce and industry, prices would rise on the 
Bourse, many shares would be saved from collapse 
and the market would once more be firm.” 

Much embarrassed, Tirpitz answered that he was 
quite ready to do what was asked, but that the orders 
proposed would involve dockyard extension, and that 
the Reichstag would not be prepared to authorize 
the necessary expenditure. Then the armament 
makers lost patience. What was the good of the 
Flottenverein if it could not arrange things of this kind? 
, At once the subsidy was cut off, and whereas in 1901 


the Flottenverein had received 170,000 marks, in the 
following years their books could only show receipts 
amounting to 410 marks. 

All this, of course, was only done for the mainten- 
ance of peace, economic revival, and the general 
well-being of the body politic! Incite a war? Far 
from it. Such an idea is as foreign to an armament 
maker as to the most fanatical apostle of peace. It 
may even be noticed that during the last days before 
the outbreak of the war in 1914, it was the news- 
papers closest to the arms interests who were the most 
pacific in their utterances. Such demonstrations of 
the love of peace may have been made only to pro- 
duce a good effect, perhaps they were inspired by 
last-minute scruples, presentiments that for arma- 
ment firms as well as for peoples the war would be a 
game of chance. 

In any case, there is no room for reasonable doubt : 
the armament industry does not desire war, at all 
events unless it is in some distant country. What it 
wants is well-armed peace and permanent tension. 
Too cloudless a peace is a misfortune — ^but so may 
be a war. The constant threat of war : that is what 
is most promising for this particular business. 

To sustain the fear which this menace inspires it 
was sometimes even necessary to launch a “scare” 
upon the public. The navy scare of 1909 was a 
masterpiece of this sort of thing. It was instigated by 
MuUiner, a director of the Coventry Ordnance Works, 
a firm connected with the shipbuilders, John Brown. 
As if the real armaments of Germany were not suffi- 
ciently menacing, Mulliner sent the government 



alarming figures of her secret naval strength. Accord- 
ing to him, the German naval programme was in 
reality twice as big as that officially published by 
Tirpitz. Later, in 1912, competent English statesmen 
were letting it be understood that Germany already 
possessed two dozen dreadnoughts. Really, there 
were only nine, but the British Government was 
able under cover of the scare to lay down four more 
dreadnoughts. This was not without its reaction 
abroad and the German programme was further 
augmented in turn. On both sides it was the arma- 
ment firms who got the benefit, for at that period 
the building of a battleship meant a profit of 

The Great Powers in the Arms Industry 

Such extraordinary manoeuvres certainly helped to 
swell the profits of the arms industry. But as a 
general rule they were hardly necessary. The big 
armament firms no longer needed to beg for orders as 
they had had to do in the middle of last century. By 
the sheer economic weight of their huge undertakings 
they had become political factors whose power was 
reckoned with on all sides. 

First and foremost came Krupp’s, which in the last 
years before the war was employing over 70,000 
people. Its capital had now reached 250 million 
marks, though the family character of the business 
was still conserved. Bertha Kirupp, the granddaughter 

'*■ H. N. Brailsford, The War of Steel and Gold. loth cd. Loadon 1918, 
p. 90. 



of Alfred Krupp, was sole proprietress, or practically 
so, for only four shares of 1000 marks each were in 
other hands. There were no male heirs in this 
generation of the family, but to conserve the name 
Bertha’s husband, a German diplomat, was author- 
ized by the Kaiser to add Krupp to his name, and 
he became Kirupp von Bohlen und Halbach. Bertha 
Krupp, the richest woman in Germany, enjoyed 
wide popularity. 

Next to Krupp’s in importance come the two 
English concerns, Vickers’ and Armstrong’s, the 
capital of each being ,(^7,000,000. But in these two 
firms the family interest was comparatively small. 
At Le Creusot, the capital had been kept small : just 
before the war it was only 36 million francs, though 
at the value of the shares on the Paris Bourse, its 
real value was nearer 200 million. The Schneider 
family continued to hold a considerable block of 

In these four great concerns, as well as at Skoda’s, 
Poutiloff’s and the Bethlehem Steel Corporation, iron 
and coal mining adjoined the manufacture of war 
material. The big armament firms endeavoured as 
far as possible to possess the sources of raw material, 
and by the development of auxiliary branches to 
make themselves as self-contained as they could be. 
That is why armament manufacture and heavy 
industry have become in popular language almost 
synonymous terms. Though this popular view is 
rather an exaggeration, the overlap is certainly con- 
siderable. The masters of these immense concerns 
rank even in peace-time among the richest and most 


powerful. Visibly, they are pillars of the nation; 
invisibly, they hold the strings which govern political 
forces throughout the world. 

War Profits in Central Europe 

From the outbreak of the war in 1914 the arma- 
ment firms in the countries at war found themselves 
suddenly in a new situation. Things were no longer 
as they had been in 1870 when exports continued to 
flourish. This time all exportation was forbidden 
except to allies, half-finished orders for foreign 
countries were requisitioned, and the whole manu- 
facture was subjected to rigorous political and military 
control. It is true that raw material for armaments, 
such as nickel and copper, sometimes found its way 
through neutral countries into the enemy’s camp, but 
on the whole supervision was sufficiently strict to 
reduce illicit trade to very small proportions. 

The ban on exports, however, brought no hardship 
to the manufacturers. For any losses that might 
have been sustained on that score were from the 
outset more than compensated by the huge orders 
placed by the home government. And if military 
control did effectively restrict the powers of boards 
of directors, yet the armament firms never lost the 
character of private enterprise. To stimulate in- 
creased production, all who had war material to sell 
were allowed to make substantial profit. There 
were no longer any problems in financing production 
or finding markets, at any rate for factories already 
established. Credits and advances were furnished 



without question. At first, the only problem was 
to increase production as rapidly as possible. Later 
another arose: how to prevent their soaring profits 
from seeming too enormous to the public. 

In this regard, less diffidence was shown by the 
armament makers of the Central Powers than by 
those of the Allies. In Germany, Krupp’s won such 
admiration from the army and the public with its 
new inventions, particularly with its 42 cm. gun, 
that no attention was paid to the money side of the 
business. Or if it was, it was to consider it as a just 
reward that the business made 68 million marks 
during the first year of the war, double the profit 
earned in the last year of peace. What good would 
it do anybody to force down the price of guns and 
restrict the profits of Frau Bertha Krupp? For 
inflation had already started and there was money 
in abundance ; if more was required, more could be 
printed. On the other hand, the need of guns was 
pressing, so let the manufacturers make what they 
could so long as they delivered the goods — ^that was 
the simple logic which during the first year of the war 
seemed right to everyone. 

And Krupp’s was not alone: the profits of other 
steel works in Germany were augmented to about 
the same degree. The average profit rose from 
12*5% in 1914 to 23-2% in 1915. Some concerns 
suffered at first from the mobilization of their workers 
and the cessation of exports. But as soon as war 
orders began to be executed, profits rose sharply. 
The Oberschlesische Eisenbahnbedarfs Aktiengesell- 
schaft, one of the most important works in Eastern 


Germany, saw its profits dwindle in 1914 from 

2.700.000 to 1,700,000 marks. But the year follow- 
ing it jumped to 6,300,000 marks and dividends rose 
from 2% to 10%. The profits of Ludwig Loewe’s 
rifle factory rose from 1,700,000 marks in 1913 to 

2.900.000 in 1914, and then to 4,300,000 in 1915. 
There were even many engineering works engaged 
on military requirements whose profits increased 
sixfold during the first two years of war. 

It was only in 1916, when a tax was placed on war 
profits, that they began to decline — at least on paper 
— and that a further rise in dividends was precluded. 
Further profits earned were employed in various 
ways or paid into invisible reserves. Accordingly, 
Krupp’s seemed outwardly to prosper on a more 
modest scale. At that time 158,000 persons, male 
and female, were employed, the part played by 
women having gready increased. This was the 
largest employment roll that had ever been reached 
in Europe. But profits now fell to 50 million 

In Austria, too, things went well for the armament 
makers. At Skoda’s the number employed rose to 
53,000, while the average profit, which had formerly 
been 5,600,000 crowns, rose duruig the first three 
years of war to 11,300,000. The dividend paid was 
only increased from 14% to I7‘5%, but in 1916 the 
company’s capital was increased from 45 to 72 
million crowns and its shares jumped in nominal 
value from 200 to 320 crowns. This prosperity, how- 
ever, was not to last. In 1918 no dividends were 


The profits of the works at Steyr jumped higher 
even than Skoda’s, increasing from 2,700,000 crowns 
just before the war to 14,300,000 a year between 
1914 and 1917. 


In comparison to the profits in Central Europe, 
those realized in France were more modest. Here on 
the average, profits were less than doubled. In this 
case, however, an average does not give an accurate 
idea, for the situation varied widely. This was not 
due to differences in enterprise or technical ability, 
but rather to geographical situation. 

The North-east of France was occupied by the 
Germans and the works in this region suffered badly. 
On the other hand, at Le Creusot, work could con- 
tinue uninterrupted, out of the reach of gun-fire. 
Since no steel could now be obtained from the East, 
Schneider’s had at the outset taken over some large 
steel works in Normandy and the firm also acquired 
coal mines. The annual profit during the war rose 
from 6,900,000 francs to 10,400,000. This enabled 
dividends to be increased by 30%, while at the same 
time considerable sums were paid into reserve. 

The Hotchkiss works did even better. In this firm, 
which had been reorganized many times, there was 
now a considerable British interest. The last years 
before the war had been rather critical. Experiments 
had been going on for a long while with the object 
of producing a new machine-gun of very rapid fire. 
So much had been spent in this way, that in 1912 the 


capital of the company had to be written down from 
6 to 4 million francs. But in the end the effort was 
justified and the new model was ready at just the 
right moment. 

From the outbreak of war Hotchkiss was one of the 
principal manufacturers of machine-guns for the 
AlHes. The factory at Saint-Denis proving inade- 
quate, another was started at Lyons in September 
1914. In the course of the next years two others in 
the neighbourhood of Lyons were added. More- 
over, the British Government got the firm to start a 
factory at Coventry. The total production of machine- 
guns by this firm amounted to over 100,000, besides 
which there were spares and accessories. 

The profits were enormous, greater than those of 
any other armament firm in Europe. Twice the 
company’s capital was doubled without a penny being 
subscribed. Dividends soared from 8% to 100%, so 
that the shareholders drew many times the capital 
they had originally invested. But even that was not 
all. After the war the company, having sold its 
factory in England, was able to pay the shareholders 
the full nominal value of their shares. In this way a 
number of millionaires arose in France who owed 
their fortxme to machine-guns. 

Boom in Italy 

Turning to the arms industry in Italy, we find a 
frantic race for profits. Though poor in raw materials, 
Italy, like other countries, wanted to manufacture 
its own arms and munitions. To the 66 regular 


armament factories were added looo auxiliary fac- 
tories, not counting 1200 smaller workshops which 
were also turned to the manufacture of mimitions. 
In all, over 400,000 workers were employed in the 

This was certainly a considerable achievement; 
but the Italians were not content with that. They 
wanted to follow the example of the great industrial 
countries in forming vast armament combines pro- 
ducing everything from raw material to finished 
product. Lack of raw materials and real industrial 
efficiency were hidden by imposing figures. 

The fagade was indeed impressive. In the heavy 
industries the big firms already established, Ilva and 
Ansaldo, knew no limit to their expansion. In both 
concerns highly speculative influences were at work. 
Under the control of the Bondi family, the firm of 
Ilva increased its capital from 15 to 300 million liras. 
But even this artificial expansion was surpassed by 
Gio. Ansaldo & Cia, who specialized in the manu- 
factxire of arms. 

The founders and chief shareholders of this firm 
were the brothers Perrone, descendants of a family 
of rich industrialists, a considerable part of whose 
fortune was invested in the Argentine. They had 
already had the opportunity of gaining experience 
and profit from war, firstly, in the Russo-Japanese 
War, when the Ansaldo works had carried out im- 
portant orders for the Japanese navy, and later 
during the Italian expedition in Tripoli and in the 
Balkan wars. What had been done so successfully 
on a small scale was now to be repeated on a large 



one. To the older products of the business, such as 
armour plates, new ones were added, including aero- 
planes and motor cars. The firm’s employees swelled 
to 50,000. One of the most profitable orders was for 
the replacement of Italian artillery after the heavy 
losses suffered before Caporetto in 1917. 

At the same time Ansaldo’s recklessly started or 
acquired other businesses on every hand. On the 
basis of a small steamship company, the Trans- 
atlantica, Ansaldo’s formed the Societa Nazionale di 
Navigazione with a capital of 10 milHon liras, which 
was soon after increased to 150 million. The 
Ansaldo company itself increased its capital from the 
original 35 million liras to 500 million, while it raised 
another 500 million by other means. Huge figures 
had no terrors for the brothers Perrone, and the 
fever of speculation ran its course. With a little 
economic sense it could have been predicted that 
such a giddy tower built on the poor foundations of 
Italian industry was bound, one day or other, to 

Mass Production in England 

In spite of the efforts of all belligerents to use to 
the utmost their own resources for the production of 
arms, the industrial supremacy of England over the 
Continent became more and more plainly visible 
as the war went on. For England possessed all the 
advantages: raw materials, factories, skilled labour 
and capital. 

The indecision of the English military authorities 


at the beginning of the war was quickly overcome. 
In the middle of October 1914 Lloyd George, then 
Chancellor of the Exchequer, sent for the representa- 
tives of the big armament firms, Armstrong’s, Vickers’, 
Beardmore’s and the Coventry Ordnance Works. 
He told them the government would provide the 
capital necessary to enable them to increase their 
output and that of their subsidiaries. It would, more- 
over, compensate them for possible losses. To this 
offer the firms replied that they would do everything 
in their power to increase production. Thereupon, 
the orders already placed for 878 guns were almost 

But that was only the beginning. In May 1915 the 
Ministry of Munitions was formed, and under Lloyd 
George’s direction things were greatly speeded up. 
With government help, Vickers’ spent ^800,000 on 
extensions, Beardmore’s spent ^^700,000 and Arm- 
strong’s ,{^525, 000,^ and in the years which followed 
the expansion of the industry was continual. The 
total production was enormous. During the war, 
25,000 gxms, 240,000 machine-guns, 4,000,000 rifles, 
250,000,000 shells, and 10,000,000,000 rounds of 
small arms ammunition were made in England. 

In all some eight or nine thousand firms contributed 
to this output, but the bulk was provided by a few 
big concerns. Armstrong’s alone, employing 70,000 
to 80,000 workers, made 13,000 guns besides building 
12 capital ships, ii cruisers, ii submarines and 
8 smaller vessels. Nevertheless, it was Vickers’, in 

^ George A. B. Dewar, The Great Munition Feat 1914-1918. London 
1921, p. 123. 


which Basil ZaharofF had now a good field for his 
salesmanship, that took first place. 

Whereas the capital of Armstrong’s was increased 
from ;(^7,ooo,ooo to 500,000 that of Vickers’ was 
raised to ;^i 3,500,000. The production of this firm 
was 9000 guns, over 100,000 machine-guns, 7 large 
warships, 53 submarines, 3 fleet auxiliaries and 62 
smaller vessels. To this must be added 5500 aero- 
planes constructed at Vickers’ works at Wey bridge 
and at Crayford. 

It is difficult to form an exact idea of the profits 
earned by all this activity. In England armament 
profits were restricted by law. They were not 
allowed to exceed a figure 20% higher than the 
average for the two years previous to the war. 
Anything above this had to be made over to the 
treasury. Accordingly, in spite of the enormous 
expansion of their trade, the dividends of the big 
English armament firms were not raised to any 
great extent. 

All the same, the money made by people like Basil 
Zaharoff during the war gives an idea of the profits 
that were to be earned in commissions and in other 
indirect ways. In the summer of 1918 it was stated 
that Zaharoff had given hundreds of thousands of 
pounds to charitable and scientific causes in the 
interests of the Allies during the war. But this 
generosity did not seriously affect his fortune, and 
he was, at the same time, able to get under his control 
a whole group of banks and industrial concerns. 
At the end of the war he was considered to be one 
of the richest men in Europe. 




Profits ofi the U.S. Steel Corporation 

But all the money made in Europe either by indi- 
vidual capitalists or by companies is negligible in 
comparison with what was made by the Americans. 
J. P. Morgan, who was the Allies’ agent in America 
for all war purchases, was at the same time a 
director and a large shareholder of the United States 
Steel Corporation, which raked in the biggest war 
profits of any firm in the country or even in the whole 
world. The profits of this concern rose to three times 
what it had been before the war; and considering 
the size of the trust, that means something enormous. 

The first period of the war saw a serious diminution 
in the profits of great steel trusts of America. After 
the excellent year of 1913, that of 1914 opened badly 
and the outbreak of war accentuated the depression. 
Enterprise seemed lacking; people were inclined to 
wait to see what happened in Europe. Supplies to 
the belligerents encountered opposition from the 
government. So in the United States Steel Corpora- 
tion profits fell from 127 to 71 million dollars. 

But as soon as Morgan managed to overcome the 
government’s opposition to war exports all was 
changed. In 1915 the United States Steel Corpora- 
tion was once more able to announce a handsome 
profit: 135 million dollars, as much as had been 
made in the best years before the war. The needs 
of the war now came to be fully realized, and the 
United States Steel Corporation, which so far had 
only been making arms in one or two of its 


subsidiaries, now organized the production of war 
material on a vast scale. As a result profits in 1916 
amounted to 333 million dollars. 

During the last two years of war a dividend of 
16% could still be paid, this being three times the 
figure for the best pre-war years. But now that the 
United States had entered the war the published 
profits shrank appreciably, for the firm could not 
conscientiously charge its own government or that 
of its allies the swollen prices it had asked as neutrals. 
The profits declared for 1917 and 1918 were 245 and 
199 million dollars respectively. 

Those were the published figures, and for a long 
time they were accepted. But in 1934 an enquiry 
was started, and the Senate made a thorough investi- 
gation into the war accounts of the armament firms. 
The results were startling. It now came to light that 
the profits realized by the United States Steel Cor- 
poration were as follows: in 1914 only 46 million 
dollars, in 1915 and 1916 about the same as the 
published figures, in 1917, 585 million, and in 1918, 
519 million. As will be seen, the last two are more 
than double the published figures. 

It must, however, be borne in mind that the United 
States Steel Corporation was already before the war 
the biggest industrial concern in the world. The only 
one which could possibly be compared to it was the 
Standard Oil Company of Rockefeller. In this light 
the figures above seem less extravagant. If its profits 
from the war are compared with those of other 
American companies, they will even appear moderate. 
1500 million dollars had been invested in it, including 

i64 the profits OF WAR 

the capital foimd for the huge expansion of war 
years, so that the maximum profits, those for the 
year 1917, only represented about a third of the 
capital. There were other companies whose profits 
for the same year amounted to three times the 
capital invested. 

Bethlehem Steel Corporation 

To get a better idea of the prosperity of American 
war industry, we must turn to the Bethlehem Steel 
Corporation, the second great steel trust of the 
United States. From one point of view, this firm 
was entitled to a lion’s share of war profits, since it 
was from the start an armament firm pure and simple. 
Though it later extended its activities into other 
fields, it was never particularly successful in these 
ventures. From 1904 to 1915 it had not paid a cent 
in dividends on its 15 million dollars of ordinary 

The war brought life into the business. In 1916 it 
was suddenly possible to pay a dividend of 22^%. 
The year following a dividend of 23 was paid, 
while a further 200% was distributed in bonus shares. 
This gave rise to hostile comment in the country, 
for it was known that this firm was supplying two- 
thirds of the guns required by the American army, 
to say nothing of orders placed for the navy. To 
placate public opinion, the board of directors con- 
fined themselves during the last year of this war to 
paying a 10% dividend on the increased share 


According to its own declarations, the Bethlehem 
Steel Corporation made an average profit of 20 
million dollars during the years of war. But, accord- 
ing to the Senate Commission, it was 62 million for 
the year 1917 alone. The salary of the president, 
Eugene Grace, ran into millions. The surprising 
thing, however, is that the chairman of the board, 
Chas. M. Schwab, the real head of the firm and its 
original creator, should himself have made so little 
out of the war. For he had always been regarded as 
the infant prodigy of the steel industry; and when 
still a young man, he had earned 2 million dollars 
a year as president of the United States Steel Cor- 
poration. Strangely enough, his name does not 
figure on the list of those Americans who, between 
1915 and 1920, paid income-tax on incomes of a 
million dollars a year or over. 

The copper industry, too, found great prosperity 
during the war. Although guns were no longer cast 
in bronze, the use of copper for ammunition was 
sufficient to make millions of dollars for the mine 
owners. The output of the American copper mines 
rose 50% during the war, while the price was doubled. 
The profits declared by the companies concerned 
were three or four times what they had been before 
the war. Here, too, the Senate investigations dis- 
closed some interesting figures. The Kennecott Co., 
one of the Guggenheim group, made a profit in 
1917 amounting to 70% of the capital invested. 
The year following it was 60%. The corresponding 
profits of the Utah Copper Company, another con- 
cern in the same group, were 200% and 150%. 


But even this was surpassed by the Calumet & Hecla 
Copper Mining Company, who won the palm with 
800% of the invested capital in 1917, and 300% 
in 1918. 

Profits ofi the Chemical Industry : the Du Fonts 

Both in America and in Europe, however, it was 
the chemical industry which earned the most sub- 
stantial and durable profits from the war. Chemical 
warfare in the strict sense was not yet sufficiently 
developed for it to bring in any great profits. But 
the consumption of explosives (explosives proper and 
propellants) reached unheard-of proportions. 

In the United States it was the old estabhshed 
business of Du Pont who made the biggest profits 
from the manufacture of ammunition. According to 
American statistics, Du Font’s supplied 40% of the 
total ammunition used by the Allies during the war. 
At the works the number employed rose from 5000 
to 100,000, while the output of powder rose from 
2,500,000 lbs. in 1914 to 400,000,000 lbs. in 1918. 
The total turnover in war material amounted to 
1250 million dollars. Total profits were 266 million 
dollars, whereas before the war they had averaged 
6 million a year, that is to say, they increased tenfold. 
There were not many businesses in America which 
achieved such a proportional increase. As regards 
the actual size of the profits, Du Font’s come next 
to the United States Steel Corporation, that is, they 
come second in rank among all the arms and muni- 
tion factories of the world. 



At first dividends were proportionate to the enor- 
mous profits, a good part of which went to the Du 
Pont family. 30% was paid for 1915, 100% for 1916. 
In 1917 dividends fell to 51%, and in 1918 fell further 
to 26%. The total dividends paid out for these years 
amounted to 140 million dollars, more than double 
the company’s capital. Even so, big reserves were 
built up. Towards the end of 1918 the firm had 
222 million dollars in hand and were owed a further 
20 million. 

It was at once realized that with the last shot fired 
the business must retrench. Within a few weeks the 
number employed was reduced to a third, but even 
that reduction was not sufficient. At the same time, 
the problem arose of how to employ the money 
accumulated. The first investment made by the 
directors, and the most important, was in a branch 
of business which had nothing to do with the firm’s 
traditional activities. 

At first it was, no doubt, regarded merely as a side 
speculation, but it turned out to be one of the happiest 
that had ever been made. Already before the end 
of the war, Du Font’s had acquired a block of shares 
in the General Motors Corporation, a block suffi- 
ciently large to inconvenience those who had hither- 
to controlled the business. For a time there was 
a struggle between the two opposing groups of 
share-holders ; then an agreement was reached, 
the Du Pont interests being now represented on 
the board of directors by an able financier, John 
J. Raskob. 

In the slump which suddenly descended on the 


United States in. 1920, the founder and principal 
shareholder of General Motors, William C. Durant, 
found himself in difficulties. The Du Fonts, with 
the aid of Raskob, took advantage of the fact to con- 
solidate their position in the company. Durant was 
thrown out and Pierre Du Pont became chairman 
of the corporation. 

This manoeuvre cost the Du Fonts 50 million 
dollars. At a moment when the motor trade was in 
difficulties, even Henry Ford feeling the pinch, it 
was certainly a daring move. But in the end it was 
justified. Motor business picked up once more and 
General Motors flourished. In 1929 the shares held 
in General Motors by the Du Fonts brought in 
more dividends than the total profit of their own 

The close connection between Du Font’s and 
General Motors presented another advantage. Du 
Font’s were thus assured of an excellent customer for 
their chemical products, particularly their varnish 
for car bodies. From this start, Du Font’s became 
the largest manufacturer of paints and varnishes in 
the world, and with the addition of other “peaceful” 
products, they became one of the largest general 
producers in the chemical industry. 

The Chemical Industry in Europe 

The big European chemical concerns also owe 
their present condition largely to the development 
and profits occasioned by the war. A good example 
in the chief German chemical trust, the I.G. Farben- 


industrie. This concern in its present form only 
goes back to the end of 1925. Six big companies 
have gone to make the present combine, of 
which some had been established for several 
generations. The most important of them had 
enormous works in which nitrogen was extracted 
from the air. 

Shortly before the war this company, the Badische 
Anilin- und Sodafabrik, had started making syn- 
thetic ammonia by a new process. The experimental 
stages were hardly passed when war broke out and 
Germany found itself cut off from Chilean supplies 
of saltpetre, which had hitherto been regarded as an 
essential ingredient of gunpowder. In this situation 
the country turned to the Haber-Bosch process 
whereby ammonia was made from nitrogen extracted 
from air. The company’s factory at Oppau, on the 
Rhine, was enlarged as quickly as possible, while 
another one larger still was erected at Leuna, in 

The government provided the necessary capital. 
No exact figures have been published of the subsidies 
given to the German chemical industry during the 
war, but it has been estimated that up to 1919 the 
Reich provided in all over 500 million marks for the 
chemical works which later combined to form the 
LG. Farbenindustrie. Even if these were not gold 
marks, they were none the less of far greater value 
than the marks in which these chemical companies 
later paid off their debts. As happened in many 
other cases in Germany, the profits of war were 
immediately succeeded by the profits of inflation. 


The essential point, however, is not that the 
Badische Anilin- und Sodafabrik paid so little for its 
own development, but that the war-time scale of 
production could be maintained in peace, the 200,000 
tons a year of nitrogen being now used as chemical 

The German chemical industry was not composed 
of family businesses to the same degree as the heavy 
arms industry, so that it is not so easy to know who 
were the persons who pocketed its enormous profits. 
Among them, however, was one whose income was 
in some ways extraordinary. This was Carl Duisberg, 
managing director of the Bayer works at Leverkusen, 
near Cologne, and later founder and chairman of the 

The income received by this man was remarkable, 
not only on account of its dimensions, but also on 
account of its source. In the official list published 
in 1934 of those in America who had during the war 
been in receipt of an income over a million dollars, 
there are no foreigners except for a single entry in 
1918, the name being Carl Duisberg, Leverkusen, 
Germany. Up to the present day the nature of this 
income has not been disclosed, whether it was derived 
from patents, dividends or other sources. But what- 
ever the source, the fact is very strange: that a 
German industrialist, who during the war was one 
of the chief organizers of German chemical manu- 
facture for war, could draw from a foreign and enemy 
country so large an income. 

By means similar to those employed in Germany, 
the chemical concerns in other countries succeeded 


in maintaining, after the cessation of hostilities, the 
prosperity the war had brought. Thus in Italy the 
firm of Montecatini, which had worked chiefly for 
munitions during the war, turned also to the manu- 
facture of chemical manure as soon as peace was 

The transition from war to peace went less smoothly 
in England, where the chemical industry after the 
war tried to free itself too abruptly from dependence 
on Continental supplies, particularly those from 
Germany. Nevertheless, after some vicissitudes. Sir 
Alfred Mond, afterwards Lord Melchett, succeeded 
in forming Imperial Chemical Industries Ltd., a 
strong combine composed of four big groups, one of 
which was Nobel’s. In many branches of this con- 
cern, which since its formation had dominated 
chemical production in England, the effects of war 
profits are still visible. 

In France, the industry suffered a period of ups 
and downs which, however, came to a happy ending. 
The most important concern to-day, the Etablisse- 
ments Kuhlmann, had their works in the war zone 
completely destroyed. But even during the war, 
reconstruction, with added capital, was undertaken. 
In various parts of France, powder and other chemi- 
cal works were erected. The shareholders who 
during the four years of war had not seen a 
dividend — a unique occurrence in the armament 
industry — ^were able to reap an abundant harvest 
as soon as peace was made and production 
successfully switched over to dye-stuffs and chemical 



The Losses oj Poutiloff and Skoda 

Whereas almost everywhere the chemical industry 
came out of the war not only with handsome profits, 
but with excellent prospects, the situation in the heavy 
armament industry was very unequal. 

The concerns in this industry can be divided into 
three groups : — 

1. Those which suffered heavy losses from the 

political results of the war. 

2. Those which collapsed after the war for 

economic reasons. 

3. Those which managed to conserve their war 

profits and employ them usefully in peace- 

The chief member of the first group was the firm 
of Poutiloff at Petersburg. Already in 1905 the works 
had been a centre of revolutionary activity, and for 
this reason had fallen into disgrace with the govern- 
ment. During the war agitation amongst the workers 
increased to such proportions that production could 
not be developed as it was in other countries. All 
the same, expansion took place with the help of 
government finance. 

After the Bolshevik Revolution this concern was 
one of the first to be nationalized. Its last director 
and chief shareholder, Nicolas Poutiloff, managed to 
reach Paris with a certain amount of his fortune 
intact, but the greater part was lost. Several years 
went by before the Russian Government began to 
take an interest in the economic revival of Leningrad, 


when the PoutilofF works once again became an 
important armament centre. 

The next great industrialist to be hit was Baron 
Skoda. With the break-up of Austria-Hungary, 
Skoda’s came under Czechish sovereignty. The new 
republic of Czechoslovakia did not wish its most 
important armament works to remain under the 
control of a family so closely linked with the Habs- 
burg regime. Accordingly, pressure was put on 
Karl Skoda, who retired from the board of directors 
in the spring of 1919. His shares were disposed off 
by the Zivnostenska Banka of Prague, the majority 
going either to Schneider’s or to a Czechish syndicate. 
Eugene Schneider became a vice-chairman of the 

In the revolution, Karl Skoda lost not only his title, 
but the greater part of his pre-war fortune. Accord- 
ing to him, the block of shares he had inherited from 
his father had been worth about 000,000. When 
the Zivnostenska Banka took over his shares, he was 
paid 7 million Czechish crowns, equivalent to some 
5(^67,000. All the same, he had not only this but the 
wealth he had amassed during the war in shares in 
other companies and in country estates. These shares 
he sold to Castiglioni, the Croesus of the inflationary 
period in Vienna whose star was then just rising. 
With this money he bought a number of houses, and 
later, bank shares. Thus at his death in 1929 he was 
stiU in a position to leave his children a fortune of 
35 million Czechish crowns, Le. some 3(^330,000. 

After a short period of transition the Skoda works 
were soon in full swing once more. For a time they 

174 the profits OF WAR 

returned almost exclusively to their old trade of 
machine construction, but then the manufacture of 
arms developed once more. The firm acquired an 
interest in other armament firms, holding for example 
40% of the shares of the Czechish arms factory at 
Brun. To-day, Skoda’s is not only the biggest arma- 
ment concern in Czechoslovakia and even in the 
Little Entente, but is one of the biggest arms exporters 
of the world. 

Reconstruction oj Krupp^s 

It is easy to understand that with the war over the 
fate of Krupp’s should be watched by all the world. 
For it was not only the biggest armament concern 
in Europe, but was also regarded as a symbol of 
German military power. That is why at the Peace 
Conference it was particularly insisted on that 
Krupp’s should definitely cease to exist as a centre 
of arms manufacture. A very considerable reduction 
of the works was, in fact, carried out. According to 
German sources, this included the destruction of 
9300 machines weighing in all 60,000 tons and 
800,000 tools weighing 10,000 tons. 

Kxupp von Bohlen und Halbach has himself esti- 
mated the cost price of the material destroyed up to 
autumn 1925 at 104 million marks. But it must not 
be supposed that this loss fell wholly on the Krupp 
family. The Reich was under obligation to give 
them compensation. What this compensation was 
dming the first years of peace has never been pub- 
lished. Even if it had, the figures would be of 


doubtful value considering the constant change in the 
value of the currency during this period. After the 
occupation of the Ruhr, however, the German Govern- 
ment, without at first informing the Reichstag, gave 
the Ruhr industries a subsidy of 700 million marks 
(and these were gold marks), of which a consider- 
able part went to Krupp’s. 

With these monies Krupp’s had less difficulty than 
many armament firms in other countries in adapting 
the works to peace-time production, in spite of the fact 
that this adaptation was forced upon it. The pro- 
gramme was ambitious: attention was turned to 
almost everything in which steel could play a part. 
All sorts of goods were manufactured : marine engines, 
locomotives, rolling stock, agricultural machinery, 
cash registers, measuring instruments, cinema appar- 
atus, telephones, electric cookers, and lots more. It 
was not possible that all these lines should be success- 
ful. Some of them, however, went well enough and 
helped to keep the business going. 

But all this was only one side of Krupp’s activities, 
a fact too often forgotten. Already before the war, 
Krupp was one of the largest mine owners in Germany, 
employing in them 15,000 men. Annual production 
consisted of 2,500,000 tons of coal and 700,000 tons 
of coke. This side of the business had hardly been 
affected by the peace treaty. Krupp had to give up 
his holding in certain iron mines in Spain, but, on 
the other hand, he had before long secured other 
sources of raw material both in Germany and 

Thus, at no moment was the Krupp family menaced 


with the fate of Poutiloff, or even of Skoda. In fact, 
its position was so strong that it was able to refuse 
to sacrifice its independence in the new steel trust 
that was formed in the Ruhr, the Vereinigte Stahl- 
werke. Employing between 60,000 and 70,000 hands, 
Krupp’s remained in spite of all the largest family 
concern in Europe. 

In 1935 Krupp’s employed 90,000, the highest 
number ever reached in peace-time, and profits once 
more exceeded 10 million marks. 

Post-war Depression 

In contrast to its mild effects on KLrupp’s, the 
depression in the arms trade after the war caused 
havoc in some of the victorious countries. The first 
crash, and the most serious, came in Italy. As has 
already been indicated, the recklessly expanded arms 
industry in that country was riding for a fall. But 
the fall, when it came, was worse than the most 
gloomy predictions. 

For a time business was carried on as though all 
was well. For the year 1920 a profit of 8 million liras 
was announced by Ilva’s. But the fagade could not 
be kept up, and six weeks later it had to be confessed 
that the whole share capital of 300 million liras, as 
well as reserves, had been completely wiped out. 
The bankruptcy was complete; there was absolutely 
nothing for the shareholders. However, with its 
liabilities washed out, the firm was started once more, 
and it was able again to take its rank as the foremost 
steel works in Italy. 



Before the affairs of Ilva were finally wound up 
another firm went under. This was Ansaldo’s, the 
biggest armament concern in Italy. In this case the 
government intervened and actual bankruptcy was 
avoided. But the business had to be completely 
reconstituted and the brothers Perrone lost their 
position of control. Four independent companies 
were formed to take over the various branches of the 
business. One of these took over the manufacture 
of arms and ammunition, and this company was kept 
in the hands of the government. This was one of the 
first acts of Mussolini. 

The slump developed less quickly in England, 
though in the end its ejffects were very serious. As 
in other countries, it was sought to replace the manu- 
facture of arms and munitions by other goods. A 
great expansion was even planned to find a productive 
employment for the large reserves accumulated dur- 
ing the war. At Armstrong’s an ambitious programme 
was drawn up for the extension of the business abroad. 
This included the construction of dykes, dams and 
other public works in every quarter of the globe. 
But, for the realization of these plans, it was neces- 
sary to get orders from abroad, and, not less import- 
ant, that customers should be solvent. This last 
condition was not so easily fulfilled in the inflationary 

In the meantime, Armstrong’s had acquired Pearson 
& Knowles Ltd., an important steel and coal concern. 
For this transaction, Armstrong’s capital had been 
increased by a further ^1,500,000. In 1921 the 
firm started on its overseas projects, forming the 



Newfoundland Power and Paper Co. to generate elec- 
tricity from the water power of Newfoundland and 
exploit its forests for the manufacture of paper. The 
cost of this undertaking was ,(^3,0005000. Similar 
investments followed in Italy, Canada and Japan, 
money being dealt out lavishly. 

The activities of Armstrong’s seem, however, rela- 
tively modest compared to those of Vickers’. This 
firm had been thrown right off its balance by the 
prosperity of the war years. Its capital had been 
increased to ;^26,50o,ooo, the maximum that had 
ever been reached by an armament firm in Europe, 
and directly after the war it embarked on new 
ventures, particularly the manufacture of rolling stock 
and electrical equipment. To this end two firms 
were acquired. The British Westinghouse Co. and 
The Metropolitan Carriage Wagon & Finance Co. 
Judged by the capital involved, this was the most 
important deal ever carried out in England. 

But, like Armstrong’s, Vickers’ did not confine its 
activities to the British Isles. In Poland it collabor- 
ated with Schneider’s to form the Societe Polonaise 
de Material de Guerre, and in Roumania it acquired 
several concerns engaged in the heavy industries. 
It plunged into the electrical industry in Italy, pur- 
chased mines in Spain, and opened a branch in 
France. In general, the business was run just as 
if the war had never ended and as if there was no 
need to worry about finding markets. In a short 
time 5(^17,000,000 had been laid out in these new 

Discomfiture did not wait long. The most ambitious 


of Armstrong’s new enterprises, the Newfoundland 
company, turned out the most unprofitable, but 
even the older-established branches of the business 
suffered serious depression. To the particular slump 
in the arms business was added the general economic 
difficulties of the time, above all, the slump in ship- 
building. The Washington Conference restricted 
naval programmes just when the Admiralty was 
beginning on a policy of expansion. Orders for four 
new capital ships had, in fact, already been placed. 
At the conference, the Aonericans demanded that 
these orders should not be executed, and even that 
ships in the course of construction should not be 
finished. Moreover, no new construction was to be 
undertaken for a period of ten years. Though not 
really wishing to go so far, the English nevertheless 
agreed in order to demonstrate their willingness to 

This was a heavy blow for Vickers’ and Armstrong’s 
as well as for smaller concerns. Vickers’, more seri- 
ously threatened than others, decided to pay no 
dividends on its ordinary shares, though the year 
before there had been a profit of over ,^500,000 and 
another half million had been carried forward from 
the year 1919. For the first time the armament firms 
got a foretaste of what things would be like in a world 
without arms. 

The Americans, however, were bent on playing 
their cruel game still further. One day their dele- 
gates made the proposal that in future warships 
should not be constructed in private yards. Re- 
peatedly the board of Vickers’ made anxious enquiries 


of the Admiralty : was the British Government really 
ready to capitulate to the American demands? The 
answer came after much hesitation. The Admiralty 
considered it “necessary and desirable” to maintain 
Vickers’ naval dockyard and armament factories. 
All the same, the request for a subsidy to keep them 
going was refused. 

Vickers-Armstrong Ltd. 

For a few years still the big British armament con- 
cerns were able to live on their capital. Then the 
situation became desperate. Vickers’ was the first 
to face it. In 1925 a committee of experts was invited 
to examine the situation and suggest what remedies 
were necessary. The report of this committee, which 
included the most eminent financiers, was not very 
comforting. To put the business on a profitable 
footing once more the capital must be written down. 
There was nothing to be done but to reduce liabilities 
at the expense of the shareholders, who must be pre- 
pared to lose a third of their capital if they were not 
to fare worse. From ;^20, 000,000 the capital was 
reduced to 2,500,000. At the same time, Mr. 
Douglas Vickers, who had been chairman since the 
end of the war, resigned. 

The fate of Vickers’ created a stir all over the world. 
Had the world really become so pacific that there 
was no lucrative business for so great a firm — or was 
it simply due to the imprudence of embarking on too 
many ventures? A few months later the difficulties 
of Armstrong’s went to show that Vickers’ was no 



isolated case. From the financial point of view, 
Armstrong’s troubles were even worse. Over 
^14,000,000 was lost, a sum exceeding the total 
capital of the company. The Board of Directors 
requested a five-year moratorium. 

But Armstrong’s were not going to get off so 
lightly. In fact, it was to suffer much more severely 
than Vickers’, for it was only able to get its affairs 
straightened out with the sacrifice of its own inde- 
pendence. An extensive reorganization was effected, 
and a new firm, Vickers- Armstrong Ltd., was formed 
in 1927 to combine the armament side of the two 
great concerns. In this fusion Armstrong’s had to 
take second place. It was Vickers’ organization 
which formed the basis of the new company, and it 
was Vickers’ that held the greater part of the shares. 
Thus an old rivalry came to an end — a somewhat 
humiliating end for Armstrong’s. 

During the year 1925, when the British armament 
industry was in the throes of its difficulties, Sir Basil 
Zaharoff, the great salesman of Vickers’, was draw- 
ing an immense income from a majority holding of 
the shares in the casino of Monte Carlo. While 
Vickers’ and Armstrong’s were learning adversity, the 
casino, acquired by Zaharoff" soon after the war, was 
making a profit of 1 10 million francs. A few years 
later, and just at the right moment, before the casinos 
of the Riviera began to feel the pinch, Zaharoff sold 
out at a handsome profit. His war profits had thus 
been far better placed in games than if they had 
been invested in guns, for which at the moment 
nobody had any use. 

i 82 


But this clever deal of the cleverest of all the arms 
merchants only proves once more that however bad 
things are, there is always a happy solution for the 
real finanical genius. The great majority, however, 
of those who had put their money into the arms 
business, regarding it as the most permanent of 
trades, were profoundly deceived. And considering 
that in England war profits had been effectively 
restricted, they suffered a real loss of capital. Strange 
as it may seem, in England the war did not bring 
wealth to the mass of shareholders in the armament 
firms but cost them a substantial sum of money. 

Expansion of Schneider’s 

Among the great armament firms of Europe, the 
only one to maintain its war prosperity was Schneider’s 
of Le Creusot. Compared to other firms, Schneider’s 
certainly found itself in a somewhat privileged posi- 
tion. After the partial destruction of Krupp’s, no 
one could dispute the claim of Le Creusot to be the 
greatest armament works on the Continent. States 
in urgent need of guns, such as those newly founded 
in Central Europe, went to Schneider’s. More- 
over, France, if she was to maintain her military 
power, was obliged to renew her arms. 

There was, however, another factor of more im- 
portance still. This was the political position in 
which France found herself after the war. Not only 
had she won, in Alsace-Lorraine, a valuable industrial 
province, but it was under her protection that the 
Danubian States now tried to organize themselves. 


This conjuncture of circumstances offered many possi- 
bilities quite apart from the supply of arms. And 
from a political, financial and industrial point of 
view, Schneider’s was better placed than any other 
concern for taking advantage of the opportunities, 
and under the able Achille Fournier it proceeded to 
do so. 

The first task was to secure a comfortable share of 
the sequestrated German concerns in Alsace-Lorraine. 
Collaborating with de Wendel, Schneider’s acquired 
the chief works belonging to the Lothringer Hiitten- 
verein, as well as the Gelsenkirchener Bergwerks — 
A.G. The purchase price of these steel and mining 
concerns was high enough, but the government, 
which sold them by auction, allowed deferred pay- 
ments. Fixed in francs, payments naturally became 
easier and easier as the franc fell in value, so that 
like many other firms in similar circumstances, 
Schenider’s benefited very considerably from the post- 
war inflation. 

Schneider’s did not rest content with the profits 
and acquisitions which accrued in this manner. 
From 1919 onwards it pursued a definite policy of 
expansion. Before the peace treaties were signed the 
firm acquired, as we have seen, a large interest in 
Skoda’s. Soon after, it acquired a large block of 
shares in the Berg- und Huttenwerksgesellschaft, 
founded by the Archduke Frederick of Austria, one 
of the largest iron and coal concerns in Czechoslovakia. 
The third great business which it acquired was the 
Huta Bankowa works in Poland, situated in the 
industrial region of Western Galicia. Besides these, 

i84 the profits OF WAR 

Schneider’s bought up a number of smaller businesses 
in the Succession States of the old Austria-Hungary. 
Finally, by holding shares in two big banks, the 
Ungarische Allgemeine Creditbank and the Nieder- 
osterreichische Escompte - Gesellschaft, it secured 
virtual control of many other industrial enterprises 
in the Danube basin. In carrying out these trans- 
actions, Schneider’s was always sure of financial 
support from the Banque de L’Union Parisienne 
with which the firm was closely associated. The 
huge group now controlled by Schneider’s was finally 
combined in a company formed specially for the 
purpose in April 1920, L’Union Europeenne Indus- 
trielle et Financiere. 

In 1921, when Achille Fournier was killed in an 
accident, the expansion of Schneider’s in Central 
Europe was practically complete. The combine still 
continued to grow, but far more slowly. One or two 
firms joined in, the chief being Arbed, a steel works 
in Luxemburg. 

Profits were good and fairly regular, though for 
the year 1925-26 no dividend was paid for the first 
time for three-quarters of a century. But this year 
was exceptional. It was the year of Locarno, thus a 
bad year for armaments, and this factor was further 
aggravated by monetary troubles in France. 

To find armament firms whose post-war develop- 
ment was comparable to that of Schneider’s, we must 
turn to America. For the United States Steel Cor- 
poration armaments were really rather a side line, 
and this side of the business, successful as it had been, 
was not pushed after the war. The Bethlehem Steel 


Corporation was a real armament firm, but, like 
others, it sought to turn the business in the direc- 
tion of non-military production. The slackening in 
the arms trade in 1920 and 1921 offered an excellent 
opportunity to buy up other armament firms less able 
to weather the depression, and the Bethlehem Steel 
Corporation acquired a few other concerns such as 
the Midvale Steel & Ordnance Co. But during the 
years of American prosperity it was the pacific side 
of the business which took first place. 

The American public began to look askance at 
armament firms after the war, and, like Du Font’s, 
the Bethlehem Steel Corporation tried to make out 
that it was really not to be regarded as an armament 
firm at all. It published figures whose object was to 
show that no more than i -5% of its capital was now 
engaged in the manufacture of war material, whereas 
at the start it had been 92%. 

Zaharoff and his Disciples 

In general, however, the first decade after the war 
was a bad time for the armament business. All 
round, naval and military expenditure was very con- 
siderably reduced. There was nothing to incite an 
armaments race such as Europe had witnessed before 
war broke out. Once more unceasing efforts had to 
be made to procure orders, and this hunt for customers 
assumed fantastic forms. 

The armament firms, it is true, had no qualms 
about the open advertisement of their wares. They 
distributed illustrated catalogues ; and armour 


plating was offered to the public as unblushingly as 
gramophone records. At the British Empire Exhi- 
bition at Wembley, the latest gun models were exposed 
to the public’s admiring gaze just as they had been 
at the great exhibitions of the nineteenth century. 
But the time was passed when on such occasions the 
monarchs of Europe came, saw and ordered. In 
fact, this direct publicity for armaments attracted 
most attention from those who condemned them. 
To do real business subtler methods had to be 

In this sphere the old Zarahoff was still the master. 
Though he had prudently invested his own money 
in other directions more in harmony with the spirit 
of the times, he was still an enthusiastic agent for the 
sale of arms. Zaharoff still worked for Vickers’, but 
this firm had concluded a secret agreement with the 
Electric Boat Co. of America, so it was natural that 
he should work for the latter too, which he did on 
the very high commission of 5%. 

The Electric Boat Co. specialized in submarines, 
and orders were scarce enough during these years. 
There were, however, one or two centres of unrest 
in the world which offered some hope. Spain, for 
instance, was conducting the Riff campaign in 
Morocco. It might be thought that for such a cam- 
paign only land weapons would have been required ; 
but this would be an error. It was just precisely 
submarines which Spain needed. Zaharoff had always 
been in close touch with Spain, and just now his mar- 
riage, at the age of seventy-five, to the Duchess of 
Villafranca brought him closer still. He was able 


to explain to the authorities in Madrid that no 
modern colonial power could exist without sub- 
marines, and he was listened to as an expert. On 
the orders which followed, he netted 766,000 dollars 
in commission. 

After this deal the Germans appeared on the scene 
as competitors. ZaharofF reported to America that 
they were “terribly active,” and that it even looked 
as though they might get a firm footing in Spain. 
Something had to be done to circumvent this, and 
the American ambassador in Madrid was asked to 
intervene. Similarly, in the Argentine, the diplo- 
matic service was called in to frustrate French com- 
petition. This time, however, it was unavailing, and 
the Electric Boat Co. failed to sell their submarines. 

Besides diplomatic manoeuvres, other means were 
employed in South America. In this quarter of the 
globe the armament industry had always made free 
use of graft. Lieutenant Aubry, a follower of Zaha- 
rofiP, was doing business for the Electric Boat Co., 
and he asked the firm to send him 15,000 dollars for 
“special commissions” in Peru, and 50,000 dollars 
for an anonymous personality in the Argentine. 
Again, the son of President Leguia in Peru got 20,000 
dollars for each submarine sold to the Peruvian 
Government. This young man did particularly well, 
for his family connections enabled him to put in a 
word for submarines with General Gomez, President 
of Venezuela. 

It must not be thought, however, that such methods 
as these were unknown in Europe. Deliveries from 
Skoda’s to the Rumanian army gave rise to a serious 


scandal. It appeared that those who had placed the 
orders were not altogether disinterested. 

A letter from Zaharoff to a younger colleague gives 
an idea of the perseverance and the finesse required 
for the sale of arms. “Government representatives,” 
he writes, “are often difficult to deal with, but my 
fifty years’ experience with them tells me that tact 
goes a very long way, and whenever my firm has got 
into misunderstandings with the authorities, I always 
changed the person who had been negotiating and 
utilized somebody else, and went on doing this until 
I had somebody who was sympathetic to the 

Threats of Disarmament 

We turn now from individual to collective action. 
Though keenly competing with each other, the arma- 
ment firms were capable of pulling together when 
their common interests were threatened. The great 
danger was, of course, zmy general scheme of dis- 
armament. For serious statesmen whose aim was 
peace there were two possible alternatives : an armed 
peace or an unarmed peace. For armament firms 
this choice did not exist, for the last alternative meant 
economic extinction. So they mustered all their 
resources for the political struggle, using all the 
means that had been employed before the war, with 
only this difference perhaps, that now they were 
used more brazenly than ever. They sent their 
emissaries to Geneva to fight disarmament tooth and 


One of the most glaring cases was that of William B. 
Shearer. Having distinguished himself in the organ- 
ization of a press campaign for a larger navy, Shearer 
was sent to Geneva in 1927 by three American firms, 
the Bethlehem Shipbuilding Corporation (affiliated 
to Bethlehem Steel), the Newport News Shipbuilding 
Company, and the American Brown-Bovery Com- 
pany. During negotiations on disarmament, his 
obstructionist activities were so flagrant that the 
British delegation complained to Washington. Kel- 
log. Secretary of State, who was just then at work 
on his famous Pact, passed the complaint on to the 
naval authorities. The latter informed the firms in 
question that they must drop Shearer, and this they 
promptly did. 

As often happens in such circumstances, a dispute 
arose over payment. Shearer maintained that the 
three companies had promised him 250,000 dollars 
for his services of which he had only received 50,000. 
The quarrel proceeded till Hoover intervened, setting 
up a commission of enquiry to go into the question. 
The armament firms protested, but without success, 
and the enquiry revealed much that was damaging 
to them as well as to certain officers of high rank in 
the American navy. 

Far more efficacious than political action of this 
sort was the constant propaganda carried on by 
political parties, associations, and newspapers who 
had an axe to grind in supporting the armament 
industry. Particularly intensive was the propaganda 
supporting the heavy industries in Germany. The 
magnates of these industries, Hugenberg, Thyssen 



and Kirdorf, succeeded at considerable expense in 
strengthening nationalist and militarist tendencies in 
Germany. The same thing was going on in other 
countries. Aristide Briand knew what was afoot, 
and his words have often been quoted: “The 
articles against peace are written with pens made of 
the same steel as guns and shells.” 

There were still more indirect ways of pulling 
strings. Here is an example which dates from the 
time of the “disarmament danger.” The famous 
film director, M. G. W. Pabst, had conceived the idea 
of making a great anti-war film, but he could not 
find a financier to back the project. One day he 
received an offer emanating from persons who “pre- 
ferred to remain anonymous.” Two million marks 
were to be placed at his disposal on condition that 
the film would deal, above all, with the horrors of 
gas warfare. After considerable enquiries it finally 
came to light that the offer had been made by manu- 
facttirers of gas masks. It need hardly be added that 
Pabst did not accept. 

The JVew Pre-war Period 

The time when these and such like methods were 
necessary is now past. Since 1933 the danger of 
disarmament has been definitely eliminated. The 
rearmament of Germany has been followed by a 
fresh spurt in armament all over the world. When 
Japan and Germany had left the League of Nations, 
the Disarmament Conference was as good as dead. 

The present wave of rearmament is not so much a 



matter of recruiting as of war material. The first to 
benefit has been the aeroplane industry. With the 
creation of a new German air force, the shares of 
those companies making aeroplanes or their engines 
leapt up in value. Thus, for example, the shares of 
the Bayerische Motorenwerke were quoted in 1934 
on the Berlin Bourse at five or six times their value 
a few years before. In England, where the air arm 
had been somewhat neglected, large orders were 
placed. Armstrong-Siddeley, Fairey Aviation, De 
Haviland, Rolls Royce and many other firms have 

The aviation industry in France has not enjoyed 
quite the same prosperity. Here a number of small 
factories are working at a loss, though efforts are 
being made to concentrate manufacture in five or 
six big companies. In spite of this tendency, factories 
of rather moderate size predominate in this industry 
in every country. Nothing comparable to the great 
steel and chemical concerns has yet grown up. 

To a lesser degree, but nevertheless considerably, 
the old armament firms have profited from the new 
arms race. If some concerns like the Bethlehem Steel 
Corporation are not yet making regular profits, that 
is due rather to the many pacific branches of the busi- 
ness which are still suffering from depression. In 
spite of substantial orders for arms, the war profits 
of the business do not make up for the peace deficits. 

All the same it may be affirmed that the armament 
industry has weathered the recent economic depres- 
sion pretty well. The armament shares quoted on 
the exchanges show the real situation much better 


than published balance sheets, and in all countries 
they have been following an ascending curve, or, if 
not, at any rate one which is ascending relatively to 
other industrials. 

It is in Japan that the big armament firms have 
done best. The two chief Japanese concerns, Mitsui 
and Mitsubishi, have each sunk a capital of some 
250 million yen in the manufacture of war material. 
Whereas in 1933 and 1934 the shares of other 
industries only increased in value by 50%, those 
of the great armament firms increased 300% in 

The export of arms is continually growing, though 
some governments put obstacles in the way. As 
regards guns, many of the great powers are sufficiently 
busy catering for their own needs, thus leaving a 
good export market for some of the smaller industrial 
countries. Of the latter, Czechoslovakia is the most 
important. Even during the very quiet years from 
1925 to 1930, this country increased sixfold its export 
of arms, most of which were from the Skoda works, 
official statistics giving Czechoslovakia as much as 
10% of the world trade. In Sweden, the principal 
ordnance works, Bofors, has been working almost 
exclusively for export. This firm was founded under 
the auspices of Alfred Nobel, and until recently a 
large number of its shares were held by Krupp’s. 
Ill 1933 the exports of Bofors amounted in value to 
20 million Swedish crowns. It is largely due to this 
firm that Sweden has been able to do 8% of the 
world trade in arms. 

Nevertheless, the chief exporter has all along been 


England. According to League of Nations statistics, 
she exported arms and munitions to the value of 
jCSjSOOjOoo during the slack year of 1930. These 
official statistics give, however, a very inadequate 
picture, since they do not include either warships 
or aeroplanes, but are confined to arms and munitions 
in the strict sense. 

The size of naval exports from England may be 
gathered from a report issued in 1934 on the activities 
of Vickers-Armstrong’s. This firm had just signed a 
contract with the Turkish Government for the con- 
struction of a io,ooo-ton cruiser, two destroyers and 
two submarines. Shortly before, the Brazilian Govern- 
ment had ordered two io,ooo-ton cruisers, one 
destroyer, one mine-layer and a submarine. Negotia- 
tions were already on foot with Portugal, Greece 
and Chile, who were expected to place orders for 
their navies. At the moment, 14 warships were being 
built or re-armed. Of these, ii were for foreign 
powers, only 3 being for the British navy. 

American estimates have given 200 million dollars 
as a round figure for the total world exports of war 
material of the year 1931.^ In view of the examples 
given above, this will hardly seem an exaggeration, 
particularly considering that this figure only repre- 
sents an eighth of the total spent in all countries on 
war material. Whatever may be the figures for the 
present day — and these are never known till some 
years later — there can be no doubt that the armament 
business is once more flourishing. Post-war depres- 
sion is over; prosperity has now returned. And 

^ Engelbrecht and lianighen, Marchands de Mort, p. 245. 


194 the profits OF WAR 

prosperity in the armament trade is the character- 
istic symptom of a pre-war period. 

If we look to the history of armaments to tell us 
the meaning of the present and the course of the 
future, one question stands out before all others. 
Does the armament business want war? Certainly 
it owes its development to war rather than peace. 
Certainly during the last war it found a prosperity 
it had never known before. Nevertheless, when all 
the results of the war are taken into accovmt, the 
desirability of war is more than doubtful. 

For the armament industry a new war would 
bring risks of the utmost gravity. Above all, there is 
the risk that the industry would not come through 
it still in private hands. The movement to nationalize 
the arms business is still strong, and in the case of 
war it might be further strengthened. And by 
nationalization we mean something much more 
drastic than the somewhat elastic government control 
and supervision which was exercised during the last 

When all is taken into account it looks as though 
the arms merchants are no longer to be classed among 
those who draw profits from war. They will draw 
profits from preparations, profits from exercises and 
manoeuvres, profits from new technical invention in 
the instruments of death. But if the slaughter once 
began, it is uncertaui what their fate might be. 

What they want is not war, but a precarious peace. 



Self-supporting Armies 

War should be self-supporting. For thousands of 
years that has been the soldier’s maxim. To attain 
this end three means have been employed. The 
first is pillage in its simplest form. This is nowadays 
regarded as immoral. It is still sometimes practised, 
it is true, but it is condemned by authority even if 
the condemnation comes too late to stop it. The 
second is authorized pillage, pillage for which a 
receipt is given; in other words, requisition. The 
last is pillage in the form of imposts or fines. 

These three may be clearly distinguished in law, 
and even more subtle distinctions may be drawn. 
But from an economic point of view, the effect is 
always the same, to enable an army to live on the 
country it occupies. In the wars of olden times, it 
was of capital importance that provisions for an 
army should be procured locally. If local resources 
ran out, the troops must move on, like a herd of 
cattle driven to fresh pastures. In time of war the 
soldier helped himself to what he wanted; he only 
bought what he could not seize, and he only took 
with him what he could not buy. All he really 

^ The French title, Les Fournisseurs, really means purveyors, and has 
thus a rather more general sense than the word I have used. — ^Tr. 




needed to take with him were his arms; the rest he 
could get as he went along. 

Apart from arms and ammunition, war supplies, 
as we now understand the term, are comparatively 
recent. The armies of antiquity did, it is true, carry 
with them equipment of all sorts, and from Rome 
provisions were sent out to the armies beyond the 
frontiers. But these supplies were so small that they 
may be regarded as negUgible. They did not give 
rise, like the supply of arms, to any special branches 
of activity. Up to modern times the provisioning of 
armies was at the most an occasional trade. 

Nowadays the business of contracting for army 
supplies is often combined with financial and indus- 
trial activity, in which case the profits may be very 
large indeed. The money made by Morgan during 
the last war is an example of such combined sources 
of profit. But even contracting alone is sufficiently 
profitable for considerable fortunes to be made 
out of it. 

Supplies Jor Maritime Expeditions and Regular Armies 

The first large supplies of provisions were not for 
land armies, who as we have seen could feed them- 
selves, but for maritime expeditions. In the time of 
the Crusades, it is true, large quantities of food- 
stuflfs were collected, sufficient to keep the crusades 
going for some months. But this was done chiefly 
by compulsory contributions, a sort of tax in kind 
levied on the population. For the great naval wars 
of the sixteenth and seventeenth centuries, huge 


stores of provisions were needed, as there were often 

20.000 or 30,000 men to feed. In 1588 the Spanish 
Armada sailed with 110,000 cwt. of biscuits, 6000 
cwt. of pork, 35,000 gallons of oil, etc. An English 
fleet of the seventeenth century carried on one 
occasion 75,000 cwt. of cattle and meat. 

Later, with the creation of permanent armies on 
land, considerable supplies of provisions and other 
stores were needed. In some countries these armies, 
maintained even in peace, grew rapidly. In pro- 
portion to the total population, the largest was that 
of Prussia, where, during the second half of the 
seventeenth century and throughout the eighteenth, 
between 3 and 4% of the population was kept per- 
manently under arms. In a country of about 5 million 
inhabitants the permanent army was not far short of 

200.000 men, each of whom received 2 lbs. of bread 
per day. This involved purchases and stocks on a 
scale hitherto unknown. Supplies were chiefly fur- 
nished by the farmers of State lands but sometimes 
also by private landowners. Army supplies stimulated 
the development of the great estates to the east of 
the Elbe, which grew until they gradually acquired 
the character of the granaries of the capitalist age, 
while their owners became millionaires. 

From the seventeenth century military uniforms 
began to be introduced in all countries. Thus an- 
other class of stores came into being. Supplies of 
clothing were even more profitable than provisions 
since it was a business that was more readily con- 
centrated. While provisions were as far as possible 
procured locally, orders for clothing were placed in 


the great industrial and commercial centres, and 
purchases were made in large quantities. In 1603 
the British Government gave an order to the firm 
of Babington & Bromley for complete outfits for 
5000 soldiers. In 1647 the Elector of Brandenburg 
gave an order to a Hamburg trader, Eberhard Schlef, 
for 20,000 ells of blue cloth. Orders were also 
placed abroad, and before long those dealing in 
army supplies were as international as the armourers. 
In 1724 Peter the Great ordered supplies from a 
group of twelve Hamburg merchants to the total 
value of 300,000 thalers. It is obvious that supplies 
to distant countries must have been particularly 

As expenses grew, two methods of procuring sup- 
plies were debated. One was for the military authori- 
ties to buy their supplies direct. The other was for 
orders to be placed with intermediaries with whom 
a contract would be signed giving them a monopoly 
either for a certain specified class of goods or for 
the whole supplies required. It was towards the end 
of the sixteenth century that these contractors ap- 
peared on the scene. Since then, the two systems 
have been used alternatively, and it is difficult to 
say which has cost the country most. When one 
method gave rise to sufficient complaints, the other 
would be tried; and when this in turn proved 
unsatisfactory, a change would once again be made. 
The fact is that neither method has been economical. 

It must not, however, be thought that it was 
always the government that was the victim. The 
dealings of governments have not always been marked 



by scrupulous honesty. Not only have officials some- 
times feathered their nests by holding up payments 
or forcing the trader to hand over some of his profits, 
but even when there was no actual corruption, the 
government was sometimes a bad debtor. If public 
money was scarce, the government might try to 
evade all or part of the payment due by putting 
pressure on the creditor. If the latter stood up for 
his rights, he could simply be thrown in prison. 
There were not many big contractors who in the 
course of their careers had never seen the inside 
of a gaol. Few, however, finished up that way; 
generally it was not very long before they were on 
their feet once more and renewing their business 
relations with the government. 

Carjaval and Medina 

One of the few contractors to reach the end of his 
career without any unpleasant experiences of this 
kind was a London merchant of Portuguese extrac- 
tion, Antonio Fernandez Carjaval. Having made a 
handsome fortune in the Canary Islands, he had 
started business in England. In 1649, before Crom- 
well’s expedition in Ireland, he had, in concert with 
four other merchants, arranged to supply wheat to 
the army. And during the wars of the next ten 
years, against Holland, Portugal and Spain, he was 
continually doing business as an army contractor. 
He died in 1659, leaving a great fortune, and 
honoured throughout the country as “the great 



Another “classic” English contractor was the 
Spanish Jew, Salomon de Medina, but, unlike those 
of Carjaval, his later days were clouded by scandal. 
Arriving in London in the same year as William of 
Orange, he was soon well established as a merchant 
under the new regime. It was not, however, the 
new sovereign who was his patron but Marlborough. 
Medina got on excellently with Marlborough, an 
expert as the latter was in every sort of financial 
deal. Medina accompanied his master on his Con- 
tinental campaigns and undertook on the spot the 
provisioning of the troops. During the War of 
Spanish Succession, Medina’s turnover was ;^8o,ooo 
a year. His assistants worked at the same time in 
Marlborough’s secret service. The general so far 
appreciated the services of his contractor that he 
persuaded Queen Anne to give him a title. This 
was the first time one had ever been conferred on 
a Jew in England. 

The friendship between these two men was, of 
course, cemented by money. In 171 1 it was revealed 
in parliament that Marlborough had been receiving 
5^5000 to ;^6ooo a year from Medina. The scandal, 
which as we saw in Chapter I ended in the fall of 
Marlborough, also brought to an end Medina’s 
brilliant career. 

The Paris Brothers 

It was in France that for five centuries the trade 
in army supplies might be seen in all its diversity, 
including all its best and all its worst aspects. 


Every possible method was tried, being introduced 
sometimes by legislation, sometimes by ministerial 

From the fourteenth century private merchants 
existed in France who were entrusted with the pro- 
visioning of troops. But this method was a rare 
exception; normally, provisions were procured by 
military requisition. In the fifteenth century Louis XI 
organized a special administrative department, making 
two commissioners responsible for supplies. A hun- 
dred years later, Henry III favoured the system of 
contractors and created the post of munitionnaire 
gineral which was the aspiration of every ambitious 

But the method of making contractors responsible 
for supply did not work out too well. So, after the 
Thirty Years War, a government department was 
once more established to organize army supplies. 
This department was overhauled and strengthened 
by Louvois, Minister of War under Louis XIV. 
Nevertheless, whenever it was put to the test under 
difficult conditions, it broke down and contractors 
had once more to be called in to help. This gave the 
latter their chance, and before long they were once 
more in the saddle. 

Among French army contractors, a place in the 
front rank must be reserved for four brothers whose 
surname was Paris, the sons of a small innkeeper in 
the Dauphine. Their ability was first proved in 
1690 when a French army was engaged in operations 
against the Duke of Savoy. The regular system of 
supplies had broken down owing to difficulties of 


transport in the Alps. The two eldest brothers took 
over the work, organizing the transport of provisions 
across the Alps into Italy. In this they succeeded, 
at the same time making a fortune. Their services 
received recognition in the capital, and soon after 
they were given important posts in the French com- 
missariat. In 1 704 Antoine Paris was appointed 
Director-General of Supplies for the army in Flanders. 
The other brothers, too, obtained good official 

But at this period to occupy an official position 
did not prevent one from doing private business. 
Under absolute monarchy, the distinction between 
private affairs and affairs of State was not very 
clearly drawn. Apart from certain notable ex- 
ceptions, neither high officials nor their sovereign 
made a practice of distinguishing between the budget 
of the country and that of their own household. 
If they went about it in the right way, they soon 
got rich. And if they did not overdo it (like 
Nicolas Fouquet, the Minister of Finance under 
Louis XIV), they could continue to enjoy every 
honour and respect. The brothers Paris were 
sufficiently astute to be able to combine private 
business and official duty for years without attract- 
ing too much attention. 

Conscious of their power, they even had the 
audacity to pit themselves against the famous in- 
flationist, John Law, whose star was then rising in 
France, starting a rival enterprise to the latter’s 
bank. Of the two, their business proved in the end 
the more solid, but for the moment, Law was stronger 


than they. In 1720 he was made Controller-General 
of Finances and he proceeded to banish the four 
brothers to their native province. Their exile, how- 
ever, only lasted a few months, for in December 1720 
John Law fell and was forced to flee the country 
with a forged passport. A month later the brothers 
reappeared in the capital. Their triumph was com- 
plete, for, with the assistance of 800 clerks, they 
were entrusted with the work of liquidating the 
inflationary system which Law had introduced. 

The third brother, Joseph Paris-Duverney, had, 
as Intendant of Finances, a particularly important 
position up to the day when Cardinal Fleury, who 
had just taken office, started a purge of government 
departments. An enquiry was ordered into the 
affairs of the brothers Paris which resulted in their 
being accused of speculating in wheat. Once more 
they were banished from the capital. Paris-Duverney 
was even sent to the Bastille for seventeen months. 
This, however, was only an interlude in the career 
of the tenacious brothers. A little later, they were 
again in Paris, and before long we find them once 
more plying the trade of army contractors just as if 
nothing whatever had happened. 

Even under Fleury’s stricter government, they con- 
tinued to make good profits. Voltaire, a shrewd 
business man, could find no better way of investing 
his money than in the commerce of the brothers 
Paris. Later Beaumarchais, no less versed in finance, 
became a partner of Paris-Duverney. During the 
War of Austrian Succession, when for once France 
and Prussia were fighting on the same side, the 



whole commissariat of the French army was placed 
in the hands of Paris-Duverney. The millions he 
made in the course of this war still further enhanced 
his prestige at the Court of Louis XV. 

The painful episodes of his career were now for- 
gotten, and he was regarded by all as a great 
organizer. It was on his initiative that the ficole 
Militaire was founded for the instruction of young 
aristocrats, and he was its first intendant. But old 
as he now was, this task was far from giving sufficient 
scope for his energies. During the Seven Years War 
he was once again dealing in army supplies, and he 
continued this trade to the end of his life. 

In France the eighteenth century was marked by 
a series of scandals concerning army supplies. Some- 
times it was the corruption of officials, sometimes it 
was the dishonesty of the com merchants. In the 
end the public became indignant and protests were 
raised in the army. Little by little the situation 
became less favourable to the contractors, though 
from time to time someone would succeed in supplying 
goods at exorbitant prices and raking in a handsome 

The decline of the French colonial empire was a 
blow too for French army contractors. Thus the 
Gradis family from Bordeaux, who for generations 
had been great figures in this trade and had organized 
supplies for the French army in Canada, suffered a 
blow from which they never recovered. They were 
already in difficulties, caused by the fact that the 
French Government held up their payments, although 
Louis XV intervened personally on their behalf. 


Then the revolt of San Domingo and Martinique led 
to the closing of their branches in the West Indies 
and caused them a loss of 3 million francs. 

Supplies during the French Revolution 

During the French Revolution, when France was 
menaced by foreign intervention, the provisioning of 
the troops was a question of capital importance. 
The revolutionary generals tried at first to organize 
supplies themselves. Thus General Dumouriez, oper- 
ating in Belgium, endeavoured with the assistance 
of doubtful contractors to secure provisions locally. 
One of the strangest figures in the general’s suite was 
a former priest, I’abbe d’Espagnac, who was given 
a monopoly of transport and who, employing all 
the tricks of a speculator, managed to make a lot 
of money. 

In Paris this sort of thing was looked on with dis- 
pleasure. The men the Revolution had brought to 
the front had resolutely decided to get rid of specu- 
lators. Moreover, decentralization was against the 
spirit of the new regime, which thus could not ap- 
prove of the local organization of supplies. Gambon, 
the specialist in economics and finance, denounced 
Dumouriez’s system and got a special committee 
formed to undertake purchases for all the armies. 
Dumouriez protested vigorously and even threatened 
to resign. In a strongly worded letter to the authori- 
ties, he maintained that contractors would always 
rob the State because the latter was so easy to rob, 
and that centralization would change nothing. 

2o6 the profits of WAR 

But the authorities thought otherwise, and in Nov- 
ember 1 792 the committee was established. Itconsisted 
of Jacques Bidermann, a banker of Swiss extraction, 
Marx-Berr, an Alsatian merchant, whose father had 
been an army contractor, and lastly Jacques- Antoine 
Cousin, professor of mathematics at the Ecole 
Militaire. But though these three set to work ener- 
getically and loyally, it was absolutely impossible, in 
the midst of revolution and war with half Europe, 
to nationalize at a blow the organization of supplies. 
Moreover, there were political intrigues to contend 
with, and denunciations from dethroned contractors, 
so that, only nine months after they had started, 
they were impeached and in these troublous times 
were lucky to escape the guillotine. 

This unfortxmate attempt at complete nationaliza- 
tion, undertaken, it is true, under the most difficult 
conditions, played into the hands of the contractors, 
who once more secured lucrative monopolies. A 
young chemist, Armand Seguin, had invented a new 
process for tanning leather. Up to this time the 
preparation of leather had taken at least a year. 
Seguin undertook to do it in a week and perhaps 
even in a day. In view of the dearth of boots in 
the French army, the government had not long to 
think it over. The Convention provided the necessary 
capital and Seguin started manufacture. The first 
samples proving more or less successful, he was at 
once entrusted with the supply of all the boots 
needed by the whole army. With these profits was 
built up one of the great Parisian fortunes which 
survived the Empire. 


But besides direct and legal transactions of this 
sort, there were other lines of business still more 
profitable. The discipline of the troops was not 
always of the strictest. Hungry soldiers and officers 
tried to make a little money in selling at any price 
they could get the spoils that fell into their hands. 
If they could lay hands on army stores, they sold 
them too. This was particularly profitable for the 
dealers, who could then sell them again to the army 
commissariat. During Bonaparte’s Italian campaign, 
a large cargo of English goods was seized in the 
port of Leghorn. The cargo was worth several 
million francs, but in less than no time it had passed 
into the hands of contractors who had bought up 
the goods at knock-down prices. Scandals of this 
sort became more and more frequent. 

The young General Bonaparte tried to make an 
end of these practices, but he had too many other 
things to do. Annoyed at his inability to control 
the contractors, he wrote to Paris: “They steal in 
so ridiculous and impudent a way that, if only I 
had a month to spare, there is not one that I could 
not have shot.” 

The Rise oj Ouvrard 

It was during the confusion of these years, while 
the tumult of revolution was gradually dying down, 
a period in which thousands tried to glean some 
profits from the wreckage of the old order and the 
hasty construction of the new, that Gabriel-Julien 
Ouvrard, the great financier and contractor of the 

2o8 the profits of WAR 

Napoleonic age, started on his astonishing career. 
We have already considered his activities as a fin- 
ancier, but, an able financier though he was, his 
real trade was dealing in military and naval stores, 
and it was to this trade chiefly that he owed his 

Ouvrard, who was born in 1770, was the son of 
a paper manufacturer in a small town in Brittany. 
When the Revolution broke out he was serving in 
a grocer’s shop in Nantes. The first news of what 
was happening in Paris awoke his speculative instincts 
and gave him the idea of striking out on his own. 
He too wanted to take part in the Revolution, not 
indeed as a revolutionary, still less as a counter- 
revolutionary, but as a profiteer of the Revolution. 
The proclamation of the freedom of the press had 
for him no moral or political significance whatever. 
For him it simply meant an increased demand for 
news print and thus a rise in the price of paper. 
Instantly, he put his theories into practice. He 
went round to all the paper factories in the province 
and, no doubt with his father’s money, bought up 
all available stocks, even going so far as to buy up 
two years’ production in advance. This speculation 
succeeded marvellously, for the consumption of paper 
grew to proportions hitherto unknown. Prices rose 
sharply and Ouvrard made 300,000 francs. 

Meanwhile, Nantes was beginning to sufier from 
a shortage of food-stufis. Official measures against 
profiteering were powerless to stop the rise in prices. 
Naturally, Ouvrard made as usual the most of his 
opportunities, but it was not long before he was 



denounced. This was serious; for in these hectic 
times a small matter could easily cost one one’s 
head. So he looked for poHtical protection. The 
Commandant of Nantes, General Boivin, was an 
old friend of the Ouvrard family, and he promptly 
made the young Ouvrard his private secretary with 
the rank of officer. He could now proudly wear the 
tricoloured cockade and his speculative peccadillos 
were soon forgotten. This semi-military position was 
for Ouvrard an excellent spring-board. As soon as 
the occasion offered, he got himself attached to the 
general headquarters of the army in the west. Here 
he was well received, and, soon after, he was given 
command of a detachment. But his proper military 
career did not last long, nor does it seem to have 
exposed him to any great dangers. The day after 
his first action he was sent to Paris with the flags 
that had been captured from the enemy, little though 
he had had to do with their seizure. 

This mission of honour gave him immediate access 
to those in high places. After a little angling, he 
even managed to get received by Robespierre. His 
business naturally did not concern flags or banners. 
What he was after was to raise money to help his 
necessitous fellow townsfolk of Nantes. At the same 
time he brought off an excellent stroke of business 
in getting 200,000 francs from the Comite du Salut 
Public for his father in compensation for his factory, 
which had been burnt down during the fighting. 
The richest merchant of Nantes, Thebaud, did not 
hesitate to bestow the hand of his daughter on so 
clever and promising a young man. 




Nevertheless, the atmosphere of Paris at that time 
was hardly favourable to commercial dealings. A 
mere denunciation and one might find oneself on 
the scaffold. It was only under the Directory, after 
the fall of the Convention, that individual rights 
were once more established and Ouvrard could safely 
devote himself to commerce. In 1796 he carried 
through some big deals in food-stuffs, making 500,000 
francs in a few months. But such deals did not 
satisfy his ambitions. Really big business could only 
be done with the State, and for this it was necessary 
to get a footing in government circles. 

With his usual shrewdness, Ouvrard was soon able 
to distinguish which of the various people holding 
office was likely to be of service to him. The man 
he picked on was a general. Viscount Paul de Barras, 
who had served in colonial regiments, and who had 
been active as a government agent under the Terror. 
Now he was a member of the Directory and was 
once again the grand seigneur. He needed a lot of 
money to live the life he did and he would certainly 
be ready to listen to men of Ouvrard’s stamp. 

Madame Tallien, who was later a favourite of 
Ouvrard’s, was at this time a friend of Barras, and 
it was in her salon that the two men got in touch. 
They were soon on visiting terms, and friendship 
bore its fruits. Placed in charge of the war depart- 
ment, Barras introduced an important reform: vic- 
tualling ought to be placed in the hands of a single 
contractor. In the army the scheme was not easy 
to reahze. There were so many merchants in the 
field that a monopoly could not be introduced 


without a struggle. But it was quite otherwise in 
the navy. 

Ouvrard, who had himself suggested the reform, 
was invited to give an expert opinion. With admir- 
able objectivity he pointed out the economies that 
could be effected by an able and honest contractor, 
and he was thereupon given the monopoly of all 
naval provisions. The yearly turnover was 64 million 
francs, and to guard against any possible depreciation 
of notes, Ouvrard managed to get his deliveries paid 
for in specie.^ 

Ouvrard’ s Fortunes Fluctuate 

In the same year, 17975 the victualling of the 
allied Spanish fleet was also entrusted to Ouvrard. 
Acting through an agent, he started at the same time 
dealing in provisions for the army. His fortune 
accumulated rapidly. Out of the Spanish deliveries 
alone he made 20 million francs in a few years. 
The bulk of his profits were invested in houses and 
landed estates. Mostly they were the old residences 
of nobility which had been seized during the Revolu- 
tion and were now being sold by the Directory at 
absurdly low prices. Ouvrard himself went to live 
in the Chateau du Rainey near Paris which had 
belonged to the Duke of Orleans. 

Everything went weU with Ouvrard until the day 
when Napoleon came into power. The latter, as we 
have seen, had no love for contractors. In January 
1800, two months after the fall of the Directory, 

^ Otto Wolff, Die Geschafte des Herrn Ouvrard^ p. 54. 



Ouvrard was arrested and a searching enquiry was 
made into his dealings in naval supplies. He was 
relieved of his functions and obliged to pay 14 million 
francs to the government until such time as his 
accounts were fully audited. A few days later, how- 
ever, he was liberated and was soon negotiating with 
Berthier, the Minister of War, on the subject of the 
new campaign projected in Northern Italy. The 
biggest contracts had already gone to Vanlerberghe, 
a corn merchant of Belgian extraction. But Ouvrard 
managed to get a part, and from now on he worked 
in close collaboration with Vanlerberghe. 

Two years later, when there was once more a 
shortage of food and the looting of shops had already 
started in the provinces, Napoleon sent for the much 
detested contractor and ordered him to take matters 
in hand. Ouvrard, exceedingly flattered at this 
sudden rehabilitation, declared himself prepared, out 
of sheer patriotism, to ask only 2% commission on 
all purchases. The year following, he even became 
once more contractor to the navy. 

In the preparations for Napoleon’s struggle with 
England, the supply of military and naval provisions 
became once more a matter of great importance. 
But the government was not over-quick with its 
payments, and before long, 68 million francs were 
owing to Ouvrard and Vanlerberghe. This delay in 
settiement plunged Ouvrard into financial difficulties 
and he was obliged to seU some of his estates. But 
this did not prevent him shortly afterwards assuming 
the rble of financier to the government. To add to 
what the government already owed him, he now 



lent 50 million francs. This loan proved insufficient 
and in June 1804, just after Napoleon’s coronation, 
Ouvrard promised the minister of finance a further 
150 milHon which he would raise in collaboration 
with Vanlerberghe, Seguin, the boot manufacturer, 
and the Michel brothers, the latter being contractors 
who had had a very doubtful reputation under the 

This was a very complicated business, and it is not 
altogether clear from what source Ouvrard was 
expectmg to procure so much money. It was hardly 
possible that it could have come from France itself, 
for the economic condition of the country was far 
from good. Probably he was counting on the fortune 
he was expectmg to make on a big deal in Spain, 
where terrible famine prevailed notwithstanding the 
fact that the country possessed untold wealth in 

To pave the way for the projected deal, Ouvrard 
despatched provisions to Madrid and advanced money 
for the upkeep of the Court. Having thus prepared 
the ground, he disclosed his real ambitions, and the 
Spaniards fell in with his plans. Like a conquistador 
of the age of Columbus, he was given a trading con- 
cession with America. In return, he was during the 
war between Spain and England to bring over from 
Mexico all the gold and silver that was wanted. 
To meet the running expenses of his fantastic project, 
he was then and there given bills of exchange on the 
Spanish treasury to a value of 52 million pesetas. 

The problem now was how to get these bills dis- 
counted. He went to Henry Hope in Amsterdam. 



Hope & Co., which the latter represented, was the 
largest and most solid commercial house on the 
Continent in Napoleonic times. The Hopes were 
connected with the Barings, the great London bankers. 
They had agents all over the world. This firm was in 
fact the only one which could have made practical use 
of the concession Ouvrard had secured. After some 
hesitation, Henry Hope promised to take the matter up. 

Everything promised well when trouble suddenly 
arose in Paris. After the English victory of Trafalgar, 
financial panic reigned in the French capital. Bank- 
ruptcies occurred on every hand, and the Bank of 
France was besieged by anxious depositors. Bank- 
notes fell rapidly in value. The finances of the 
government were in the most critical state. 

The Emperor, then in the field against Austria, 
hurled abuse and insults at the financiers. While 
he was leading the French troops to victory at 
Austerlitz, they were trying to put a spoke in his 
wheel. All right: they should pay for it! On his 
return in January 1806, he proceeded to make the 
most searching enquiry. Ouvrard’s promises to get 
money from Spam turned out to have been the 
merest castles in air. Worse still, his confidant, 
Duprez, had taken advantage of his position at the 
Bank of France and had fraudulently converted 
several millions of the bank’s money. 

Thus, Napoleon discovered that, in spite of his 
principles and his past experience, he had allowed 
himself to be the victim of a band of speculators and 
usurers, from whose meshes he could only get free 
by the use of force. Accordingly, he arbitrarily 



reversed the roles: it was now no longer the State 
which was the debtor to the contractors and the 
bankers, it was they who had given undertakings to 
the State which they had not fulfilled. There was 
no longer any question of negotiating, the Emperor 
issued his decree. These financiers were to repay 
87 million francs to the treasury. If they either 
could not or would not, Ouvrard and all his clique 
would be imprisoned in the Tour de Vincennes. 

Ouvrard realized that, for the moment at any rate, 
his game was lost. So he promised to pay all that 
was asked. And in fact in the course of the next 
years, he and his associates managed to pay off the 
greater part of their debt in supplies to the army 
and navy; and this in spite of the fact that Napoleon 
had subsequently raised their debt from 87 to 141 
million francs. But having paid the greater part, 
Ouvrard sought to escape the rest by going into 
liquidation. He certainly hoped that the remainder 
owing would fall into oblivion. Napoleon, however, 
had a prodigious memory concerning all matters that 
he had dealt with personally, and in July 1809 he 
unexpectedly issued a warrant for Ouvrard’s arrest. 
At the same time he cancelled all contracts for army 
and navy supplies, every branch of which was now 
nationalized once more. 

Ouvrard and the Restoration 

With brief intervals, Ouvrard spent the next four 
years in prison. It was, however, a very mild in- 
carceration. He obtained permission to furnish some 

2i6 the profits of WAR 

of the prison rooms according to his taste, and one 
of them he made his office. Prison doors did not 
stop him doing business. And when they were in 
difficulties even the government came to consult him. 
When, for example, in the spring of 1812 a shortage 
of food was felt once more, the Prefect of Police of 
Paris came to him for advice. And with his un- 
rivalled experience in such matters, Ouvrard promptly 
outlined a complete scheme for provisioning both the 
army and the civil population. At the same time 
he sketched out a plan for the commissariat of the 
Russian campaign, a plan, however, which never 
reached the Emperor. 

Two years went by before Ouvrard was once more 
in business as army contractor. Under the first 
restoration, while Napoleon was at Elba, he secured, 
acting through an agent, the whole government 
supplies of provisions and fodder. His friends, the 
Hopes of Amsterdam, advanced him the necessary 
money. When Napoleon returned from his first 
exile, Ouvrard’s financial position was sufficiently 
re-established for him to be able to offer the Emperor 
a substantial loan. His triumph now amply com- 
pensated for his prison years for he was appointed 
munitionnaire genhal, in charge of all purchases of army 
supplies of all kinds. 

The government installed after Napoleon’s final 
downfall at first regarded Ouvrard with disfavour, 
for the latter wanted to take up some guarantees 
which Napoleon had given him for his last loan. 
But it was not long before he was on good terms 
with the new regime. He participated in the issue 


of a loan effected by Baring’s of London and Hope’s 
of Amsterdam to finance the payment of the 
reparations imposed on France. He also furnished 
provisions for the AlHes’ army of occupation in 

During the war in 1823 between France and the 
revolutionary government in Spain, Ouvrard once 
more secured the victualling of the French army. 
But the contract which he signed with the commander- 
in-chief, the Duke of Angouleme, was this time really 
too one-sided. The government undertook to hand 
over to Ouvrard all supplies already collected by the 
military authorities and, moreover, to advance him 
considerable sums of money. In fact, the govern- 
ment took all the risks. This time Ouvrard once 
more overstepped the mark. When this minor cam- 
paign was over, and the Chamber of Deputies came 
to look into its costs, Ouvrard’s contract came in 
for detailed scrutiny. It was then revealed that of 
the 50 or 60 million francs expended on provisions, 
33 millions had gone into Ouvrard’s pocket. After 
checking every wagon of hay and drawing up a 
report of 2000 printed pages, the commission of 
enquiry came to the conclusion that Ouvrard’s opera- 
tions had been gravely prejudicial to the nation’s 

Now that public opinion was definitely hostile to 
Ouvrard, it was an excellent opportunity for his 
enemies to pay off old scores. Seguin, his former 
associate, succeeded in getting him arrested for an 
irregularity which had occurred twenty years pre- 
viously. Soon afterwards prciceedings were also 

2i8 the profits of WAR 

started against him on account of the Spanish sup- 
plies. But they dragged on interminably, ending 
five years later in an acquittal. During all this 
time Ouvrard remained in prison, whiling away the 
long days in writing his memoirs.^ 

When he was finally released, Ouvrard, then ap- 
proaching sixty, plunged into business once more. 
As a contractor he was finished for good, but there 
were other ways of making money, and he devoted 
the remaining sixteen years of his life to speculation 
in rentes, sometimes in Paris, sometimes in London 
and sometimes in Holland. 

His old associates did not cease to attack him , and 
Ouvrard was imprisoned once more. In the end 
his luck seemed to have abandoned him. Whereas 
at the begiiming of this period he carried through 
big and successful deals on the Bourse, even in op- 
position to the Rothschilds, his later speculations were 
on a much smaller scale and less and less fortunate. 
And when at the age of seventy-six he died in London, 
though he was still comfortably off, his death passed 
xmobserved. Although in many ways Ouvrard was 
very modem in his methods, he nevertheless belonged 
to a period that was over. His mentality was really 
that of the schemers of the seventeenth and eighteenth 
centuries who wandered about Europe hawking their 
marvellous projects from coxirt to court. For Ouvrard 
a government was merely a subject for exploita- 
tion. It was none the less the focal point of all his 
operations. He believed firmly in the superiority 

^ Mimoires de G.-J, Ouvrard sur sa vie et ses diverses operations financihes, 
Pari§ 1826-1827* 


of the private capitalist and had only contempt 
for bureaucracy. Yet the idea of an economic field 
of private enterprise qxiite outside the orbit of 
State finance — the notion so dear to the nineteenth 
century — ^was altogether strange to him. He was 
thus perhaps the last typical munitionnaire of the 
old style. 

The period which followed, at any rate in Europe, 
was relatively peaceful. Wars were short, and widely 
separated in space as well as time. In times of 
peace the military authorities made their own pur- 
chases. Certain branches of industry and trade might 
indeed do good business with the services, but this 
was only a small part of a nation’s business and 
demands no special place. The total volume of trade 
in naval and military supplies was, for instance, less 
than that created by the construction of railways. 
From now on there were only two business groups 
whose dealings with governments were on a really 
big scale: the armament manufacturers and the 

The American Civil War 

It was quite otherwise in America. There the 
Civil War provoked an economic upheaval far more 
serious than was caused by all the European wars 
between 1815 and 1914. A huge country which was 
just feehng its way towards economic unity found 
itself cut in two by the war between the North and 
the South. In the North there was a surplus of corn 
but not enough clothing; in the South too much 



cotton but not enough to eat. Many products were 
lacking on each side. 

The country was in no way prepared for war. 
Everything had to be improvised; and this was at 
a time when a vast migration was in progress. Hun- 
dreds of thousands were setting out westwards to 
find new lands or in the search for gold or silver. 
While 500,000 men were being killed in the field, 
800,000 pioneers were moving west. The monetary 
system collapsed under the strain. In the North 
the “greenbacks,” as the new bank-notes were called, 
depreciated by 50%, while in the South paper money 
fell to a twentieth of its face value. 

In these chaotic conditions a bold profiteer could 
carve out a career. At first, everyone was dis- 
concerted and discouraged. Banks suspended pay- 
ment. In the North, 1 2,000 businesses went bankrupt. 
But this depression soon gave place to a hectic war 
boom. A million dollars, which till now had been 
a figure inspiring the deepest respect, was now the 
aim of every bold adventurer in the business world. 
Before the war the number of millionaires in the 
States had not even reached a dozen, but during the 
war hundreds of people amassed fortunes of several 
million dollars. 

The magnates of big business, who during the 
second half of the nineteenth century attained the 
summits of plutocracy, had nearly all laid the foun- 
dations of their fortunes during the Civil War. We 
have already seen how John Pierpont Morgan at 
the age of twenty-four started his traffic in arms, 
buying and selling old rifles at a profit of 500%. 



Another was Andrew Carnegie, the great indus- 
trialist, who was twenty-six when the war broke out. 
He was then working in the Pennsylvania railway 
under T. A. Scott. When the latter was appointed 
assistant secretary of war, in charge of military trans- 
port, he took the young Carnegie with him. 

Official responsibilities did not prevent either 
Carnegie or Scott from doing business on their own 
account. On the contrary, the positions they occupied 
in the ministry of war gave them excellent oppor- 
tunities. Carnegie was, for example, in a position to 
notice the dearth of rails and of good bridges. So, 
in the middle of the war, he proceeded with Scott 
to found a company for the construction of bridges 
and the manufacture of rails.^ In his situation it 
was not difficult to procure orders for the company, 
and the business extended rapidly. As the price 
of iron soared during the war, Carnegie founded 
some wrought-iron works. It was from these two 
businesses that the huge steel concern grew which 
Carnegie was to sell to Morgan in 1901 for 447 
million dollars. 

Then there was John D. Rockefeller. From the 
age of twenty he had been working in a small 
commission agent’s business in Cleveland docks. 
During the war business flourished, particularly the 
shipping of cereals along the great lakes. Rockefeller 
invested his profits in another line of business, oil, 
far more lucrative though at that time little developed. 
In the course of the war the price of oil went up 

^ Autobiography of Andrew Carnegie. Boston and New York 1920, 
p. 115. 



from lo cents a barrel to 8 dollars, so Rockefeller’s 
capital grew fast. At the end of the war Rockefeller 
was already in a position to buy out his partners at 
a price of 72,500 dollars. When he needed new 
capital to enlarge his plant, he got it from Stephen 
Harkness who had during the war become the richest 
man in Cleveland by selling rum and whisky.^ 

All those who at this period made a fortune in 
America owed it to the war. John Wanamaker, the 
owner of the great department stores, began by 
dealing in military stores. He supplied blue flaimel 
to the Federal army, and the money he made in 
doing so formed the basis of his immense fortune. 
Like other dealers in war material such as Nobel 
and Carnegie, Wanamaker became later an ardent 
pacifist. After the last war a monument to his 
memory was erected in a public place in New York, 
a star perpetually illuminated whose rays were to 
call people to perpetual peace. It is perhaps not 
without symbolic meaning that among the lights of 
the huge metropolis this eternal star should seem no 
brighter than a modest candle. 

‘^Shoddy Aristocracy” 

The supplies delivered during the American Civil 
War justified once more the motto according to 
which you make money, not out of what you deliver, 
but out of that which you fail to deliver. Constant 
efforts were made to deceive the government con- 
cerning the actual quantities supplied. Nevertheless, 

^ John R, Wuckler, John D, Rockefeller, Berlin 1930, p. 69. 



the trickery of which the government was the victim 
concerned chiefly the quality of goods. Obsolete 
weapons, porous leather, inedible provisions and 
diseased horses were all supplied, and dishonesty 
did not even spare the wounded. The multi- 
millionaire, A. B. Farquhar, who in his youth had 
been engaged in the business, gives in his auto- 
biography some graphic details.^ Stretchers, for 
instance, were made of old laths which were con- 
stantly breaking. Some serious cases died as a result 
of the falls to which the wounded were thus liable. 

Those who engaged in these practices were, how- 
ever, impregnable. They formed amongst them- 
selves a sort of syndicate which could see to it that 
government inspectors were adequately bribed. But 
Farquhar managed to get an audience with one of 
the authorities and he took with him one of the 
defective stretchers inviting the official to lie down 
on it. Needless to say, the stretcher duly broke and 
Farquhar was given an order for an article of better 

Of course the military authorities were not blind 
to this state of affairs. But they did not dare make 
a row, for all war material was scarce and they 
feared to make it scarcer. Short of everything, they 
accepted all that was offered, and those who had 
been bribed winked at even the most barefaced 
swindle. There thus rose to fortune in America a 
whole class of people who were named, after their 
goods, the shoddy aristocracy. Subsequently, parlia- 
mentary enquiries were instituted which revealed the 

^ A. B. Farquhar, The First Million the Hardest New York 1922. 

224 the profits of war 

gravest abuses. But the American Government was 
more lenient than the French Government had been 
to Ouvrard. Not one of the big profiteers was sent 
to prison. Action was only taken against a few small 
agents and subordinate officials. 

Transport Profits 

The largest profits realized during this war were 
derived, not from supplies themselves, but their 
transport. The railway companies found themselves 
in a particularly good position to take advantage of 
the situation. Cameron, the Federal minister of 
war, had himself an interest in them; so had Scott 
and Carnegie. And they managed to make the 
government pay 50% more for transport than did 
the general public. Thus Scott’s company, the 
Pennsylvania railway, was able during his first year 
of office to show an increase in profits of 1,300,000 

It was much the same with shipping companies. 
In this field, the great man was Cornelius Vanderbilt. 
At a time when Morgan, Rockefeller and Carnegie 
were only starting, he was already getting on for 
seventy and one of the richest men in America. 
In later life he turned to railways, but before then 
he had made a fortune of several million dollars 
from his shipping lines. 

In 1862, when the Federal Government decided 
to undertake an expedition against New Orleans, 
the principal southern port, they turned to Vanderbilt, 
as shipping expert, asking him to get together the 



necessary ships. In a short time he had chartered a 
whole fleet. For it he charged the government double 
what he had paid to the smaller shipowners who 
had supplied the vessels. Moreover, here as else- 
where, the material supplied was deplorable, some 
of the ships being so rotten that it was highly 
dangerous for them to put to sea. A commission 
of enquiry, set up to investigate the matter, put all 
the blame on a man called Southard, an agent of 
Vanderbilt’s, and exonerated the latter from all 

The blockade of the Southern States rendered 
navigation in southern waters dangerous, but it was 
all the more lucrative on that account. The Con- 
federates were prepared to pay anything for imports. 
Ships that succeeded in running the blockade with 
war material could make 5^30,000 on a single cargo. 
If two ships got through for every one captured, 
the shipowners did not need to worry over the loss. 
In fact the business was so attractive to investors that 
in the Southern States 50 or 60 million dollars was 
invested in it. 

Transport profits rose so high during the blockade 
that foreign capital was attracted. In 1863, when 
the outlook was already none too bright for the 
Confederates, the French bank of Erlanger issued in 
Europe a loan of 15 million dollars for the Southern 
States. The latter were to guarantee the loan in 
stocks of cotton. The loan was to be used to pur- 
chase ships and war material. In fact, it turned out 
to be one of the strangest war transactions that the 
world had ever seen. Of the 15 million dollais, 



5 million was spent on ships that never reached 
America, while 7 million was used for the service 
of interest and for maintaining the value of the loan 
on the Bourse, so that only one-fifth of the loan was 
left for the borrowers. On their side, when the 
Confederates started to buy the cotton which was 
to be the guarantee, the strain on their currency was 
so great that it collapsed.^ 

From this time onward, shipping remained one 
of the most profitable businesses in war-time. For a 
war gave shipowners the opportunity of selling or 
letting at inflated prices old ships that were not 
worth much to their owners. 

An Army on a Cook’s Tour 

A peculiar transaction in war transport was one 
between the British Government and the firm of 
Thomas Cook. From 1871 it was being seriously 
considered whether the colonial transport of troops 
should not be entrusted to Cook’s, who could do it 
cheaper than the government could. Thirteen years 
later, when England was preparing an expedition 
to the Soudan, the plan was put into execution. 

Even before the British became predominant in 
Egypt, Thomas Cook, founder of the firm, and his 
son John Mason Cook, had won for themselves a 
peculiar position in that country. They were re- 
sponsible for the regular steamboat and postal services 
on the Nile, and as “passenger agent” to the Khedive 

^ H. U. Faulkner, Amerikanische Wirtschaftsgeschichte, Dresden 1929, 
voL ii, p. 62. 


they enjoyed a virtual monopoly in all matters of 

After the battle of Tel-el-Kebir in 1882, Cook’s 
had already undertaken the transport of the wounded 
to Alexandria. Two years later, when the British 
gathered their forces to strike a decisive blow in the 
Soudan, the government put the whole of their 
transport into Cook’s hands. Under their organiza- 
tion, 18,000 men and 130,000 tons of war material 
and provisions were sent up the Nile in 28 steam- 
boats and 800 smaller vessels. The expedition arrived 
too late to save Gordon, but that was not their 
fault, and the expedition won them a considerable 
reputation as well as bringing them substantial 

Nevertheless, the experiment of arranging army 
transport by monopoly has never been repeated, 
though during other colonial campaigns, the British 
Government has called in the services of shipping 
companies. During the Boer War, John Ellerman, 
the shipowner, was very active. Already during the 
Spanish- American War of 1898 he had made very 
profitable use of his ships. Now that his own country 
was at war, he promptly put all his ships at the 
disposal of the government. 

The money he made during the South African 
War ran into hundreds of thousands of pounds. 
When it was over he sold his most important concern, 
the Leyland Line, to an American group headed by 
Morgan. The million pounds he made on this deal 
were at the opportune moment put into other shipping 


Nor did the older and more important shipping com- 
pardes disdain the opportunities which wars offered. 
During the Russo-Japanese War the Hamburg- 
American Line, the largest German shipping com- 
pany, did very good business with Russia. Already 
towards the end of 1903, when the situation in the 
Far East was threatening, the head of the firm, 
Albert Ballin, sent his representatives to Petersburg 
to persuade the government to buy ships. ^ A few 
months later — ^war having meanwhile broken out — 
a deal was concluded by which the Hamburg- 
American Line were reheved of 15 of their old ships 
at prices no one in Hamburg would have dreamt of 

Then when the Russian Government decided to 
send the Baltic fleet round to the Far East to relieve 
Port Arthur, the Hamburg-American Line undertook 
to supply the fleet with coal during the whole of its 
voyage. To carry out this difficult job the Germans 
had to charter foreign vessels. In all, 80 colliers 
set out to coal the Russian fleet, some going through 
the Suez Canal while the greater part went round 
the Cape. Little good though this voyage did for 
the Russians, the Germans at any rate were hand- 
somely remunerated. The profits shown by the com- 
pany for the two years of the war rose from 22 to 
38 million marks. Dividends were increased from 
6% to 11% and there was still enough money kept 
in hand to replace by new and sumptuous vessels 
the old ships that had been sold to Russia. 

^ Kurt Himer, Geschichie der Hamburg- Amerika Linie. Hamburg 1927, 
vol, ii, p. 81. 



The Shipping Boom in England 

During the last war the position of the shipping 
companies was entirely different on the two sides 
of the front. The German and Austrian companies 
were from the first days of the war completely 
paralysed, and remained so till hostilities came to 
an end. Albert Ballin, though not himself a large 
shareholder in the Hamburg-American Line, was 
driven to despair. On November gth, 1918, at the 
very hour when his friend, the Kaiser, fled the 
country, he committed suicide. 

With the Allies, on the other hand, it was just the 
opposite. French, and stiU more Italian companies 
paid out dividends with both hands and distributed 
bonus shares. But this was nothing compared to 
the boom in English shipping. The English merchant 
marine had not only to bring food and raw materials 
to Europe from all parts of the world and troops from 
all parts of the Empire, but had also to carry the 
endless cargoes of war material coming from the 
United States. 

As their commerce gradually increased during the 
nineteenth century, the Americans had given up the 
attempt to cope with it with their own shipping. On 
the eve of the Civil War as much as two-thirds of 
their overseas trade was carried in their own ships, 
while by 1900 it had fallen to 7%. At the beginning 
of the last war their total shipping for external 
commerce amounted only to half a million tons. 
This was a negligible quantity considering the volume 



of trade to be carried. Thus the English shipowners 
found themselves without a serious competitor. 

The British Government, on whom devolved directly 
or indirectly the cost of war transport, remained 
faithful to the principle of the free market. The 
question did indeed arise, whether the government 
should not requisition the shipping it required, but 
the free market won the day. The methods current 
during the Napoleonic wars and the Boer War re- 
mained practically intact : freights were to find their 
own level according to the law of supply and demand. 
Considering there was great demand for ships and 
comparatively little supply, the shipowners had it all 
their own way and could charge the government 
pretty well what they liked. From 1914 to 1917, 
the price of chartering ships rose from 3 to 50 shillings 
per ton. 

Under these conditions the purchase price of ships 
rose at the same giddy rate. There was a rush for 
even the oldest freighters so as to take advantage of 
such a golden opportunity. Shipping companies 
big and small were buying and selling ships to 
one another at fantastic prices. For ^1^5, 000,000 
the Cunard Line acquired the Commonwealth and 
Dominion Line, whereas the capital value of the 
latter company was no more than ^^2,000,000 at the 
outside. The Cuban Steamship Company sold three 
ships for a sum of ^,(^325,000, whereas they had 
originally cost 3^190,000 and their value had since 
been written down to ^96,000 on the company’s 
books. But these were relatively modest prices. In 
1917 Alfred Holt’s paid ^^600, 000 for four old ships 


of the Knight Steamship Company which were valued 
on the latter’s books at 3^80,000. On the average, 
the price of ships increased fivefold. 

Even at the highest prices, the purchase of ships 
appeared a good economic proposition. The profits 
of passenger lines were doubled or trebled, while the 
profits from freighters increased tenfold. Net profits 
on English shipping totalled 5^20,000,000 in 1913;' 
in 1916 the figure was 5(^250,000,000. After deducting 
the excess profits duty, which brought the Treasury 
5^115,000,000, the balance of profit was still 67% on 
the invested capital.^ 

It was only when prices reached extravagant heights 
and the shipping companies had made 5^300,000,000 
in the first two and a half years of the war that the 
government began to think of taking action. Then 
Lloyd George started to enforce stricter control, and 
in June 1917 the government proceeded to requisition 
ships and fix the freights. Even so, business was still 
profitable enough for the shipowners, though during 
the last year of war the increase in total tonnage 
began to be felt. For ships were being built much 
faster than they could be sunk by the German 

The reaction in shipping as soon as war transport 
ceased was bound to be considerable. In fact the 
only shipowners who came through with their fortunes 
intact were those few who had refrained from greatly 
enlarging their fleets, and who had prudently invested 
their profits in other fields. Foremost among them 

^ Ernest Fayle, The War and the Shipping Industry. London 1927) 
p. 180. 


stands Sir John Ellerman. He had, it is true, en- 
larged his fleet, but he did not wait till too late to 
invest a considerable part of his fortune elsewhere, 
buying blocks of houses in the West End. While 
shipping prices collapsed after the war, house pro- 
perty, particularly in central London, never stopped 
rising. In 1929 Ellerman’s fortune was estimated at 
;£' 35 ,ooo,ooo. His wealth eclipsed that of the wealthy 
English aristocracy, and even Sir Basil Zaharoff was 
not to be compared with him. Then the economic 
crisis supervened which reduced even the most wisely 
invested fortunes. Nevertheless, at his death in 1933, 
he was able to leave a fortune of ^^30,000, 000, being 
thus the richest man in England, probably in the 
whole of Europe. His death duties, as may be 
imagined, were a windfall to the Treasury. 

Profits of the Neutrals 

Though not to be compared with the English 
shipowners, those of the small neutral powers did very 
well. Shipping dividends in Holland rose from 10 or 
20% in 1913 to 50 or even 100% in 1916. In Sweden 
the profits of three companies rose during the same 
period to seven times what they had been. In Norway 
profits rose to four times, and in Denmark sixteen 
times, what they had averaged before the war. 

It is characteristic of these countries that with 
them the carrying trade was combined with trading 
itself. Like ancient maritime companies, the shipping 
firms often bought cargoes on their own account and 
carried them to belligerent countries. In this way 



they supplemented their proper shipping profits. In 
Germany, above all, fantastic prices were paid for 
anything that could be run through the blockade. 
In the neutral countries many fortunes were made 
from the trade in war supplies. According to fiscal 
statistics, 367 names were added to the list of Dutch 
millionaires in one year. 

In neutral countries, as elsewhere, easy profits led 
to wild expansion. A profusion of new businesses 
came into being. In the Scandinavian countries, 
usually so prudent, the shipping boom overstepped 
all reasonable bounds. 3000 new companies were 
floated there, shares being issued to the tune of 
2000 million crowns. In Norway, poor as the country 
was, 70 new banks were founded, and the value of 
shares issued was 500 million crowns. As for Denmark, 
she plunged into a particularly risky venture in 
trying to profit by the eclipse of Hamburg to make 
Copenhagen the foremost commercial city of the 

In 1916 a transatlantic import and export company 
was founded at great cost under the auspices of 
Gliickstadt, the banker, which was to blaze the trail 
of Danish commerce throughout the world. Over 
fifty branches were opened in foreign countries. But 
business did not fulfil expectations. The German 
submarine campaign, becoming more and more in- 
tensive, hindered the company’s activities. Worse 
still was the collapse of Russia, for until it occurred 
it was with that country that the company’s business 
had been most successful. A considerable debt had 
piled up with the Russians, and this was, of course, a 



total loss. This was the reason why Gliickstadt 
entered the field against the Soviet Government, 
financing General Youdenitch’s march on Petrograd. 
This counter-revolutionary venture failed, however, 
and with it all hope of the Danes recovering their 
money was extinguished. 

Gluckstadt’s many other enterprises and specula- 
tions were hardly more fortunate, and, once the war 
was over, he had to throw his hand in. The losses 
of the transatlantic company, amounting to 200 million 
crowns, involved the failure of Gluckstadt’s bank, 
the Danske Landmannsbank. In the end the govern- 
ment had to come to the succour of depositors, 
paying out 300 million crowns. Gliickstadt, who 
before the war was one of the richest men in Denmark, 
and during the war was regarded as the Croesus of 
Northern Europe, died in prison in 1923. 

Rather more solid success rewarded the activities 
of the Dutchman, August Kroller. With his shipping 
company, Wm. H. Muller & Co., as nucleus, he 
succeeded in forming a huge combine of commercial, 
industrial and financial concerns. Already before 
the war, Muller’s had been closely in touch with 
German heavy industry, providing ores from Spain, 
Morocco and Sweden, especially to Krupp’s. The 
ores were carried in the firm’s ships, and came in 
part from the firm’s own mines. During the war 
Kroller continued to trade with the Germans so far 
as this was possible. At a time of the greatest scarcity 
he provided them with Argentine wheat. 

The great profits which this business brought 
him enabled him to strengthen his position in the 


Rotterdamsche Bankvereeniging and in the merchant 
banks controlled by it. He also acquired a substantial 
interest in German heavy industry. Losses after the 
war, however, particularly in shipping, were so con- 
siderable that in 1925 Krdller was obliged to reduce 
his group to much smaller proportions. A few years 
later, only a modicum was left of what had been 
probably the greatest war fortune of the neutral 

War-time Trade in Germany 

In the industrial field — apart from the arms industry 
— it was in Germany that the greatest profits were 
made during the first part of the war. While in 
allied countries profits were limited for a variety of 
reasons, and in America a trade depression occurred, 
all the German industries flourished from the start, 
adapting their output to war-time needs. The govern- 
ment had no desire to restrict profits : on the contrary, 
it encouraged them as a stimulus to production. 
The military authorities, who now held the reins, 
had laid it down as a principle that money did 
not count.^ 

The industries were few which, like the gas and 
electric light companies, had no part, direct or in- 
direct, in war supply, and were thus unable to turn 
the occasion to advantage. If we compare the per- 
centage profits of German companies in 1915 with 
those of the year before, we get an idea of the general 

^ Ludendorff, Kriegsfuhrmg und Poliiik. 2nd ed., Berlin 1922, 
p. 122. 


increase in prosperity. Profits in the leather industry 
rose from 20-3 to 37-7%, in oils and fats from 15 to 
20-3%, in textiles from 14-7 to 23-8%, in timber 
from 5-5 to 10%. Even many industries and trades 
which would seem to have nothing whatever to do 
with war flourished with the rest. For instance, the 
mobilization of millions of men, who were given 
military training or held in reserve in overcrowded 
barracks, brought prosperity to hotels and restaurants. 
In the catering trade profits rose from 6 to ii'4%.^ 
All this relates to a time when the value of the 
German currency was stiU more or less intact. 

Later, when the blockade caused an acute scarcity 
of goods, the picture changed. Businesses now had 
to submit to a rigorous control of prices. On the 
other hand, himdreds of thousands of people, if not 
millions, particularly in the country, made money in 
evading the regulations and selling their goods clan- 
destinely at exorbitant prices. Accordingly prices 
were very unequal. 

Then came the depreciation of the mark, which 
by the end of the war had fallen 40%. In spite of 
innumerable rules and regulations, business became 
more and more speculative and large sums of money 
were made. But after the war, when the cmrrency 
collapsed in Germany and several other countries of 
Central and Eastern Europe, most of the war-made 
fortunes were quickly dissipated. The only ones to 
conserve their fortunes were those, like Hugo Stinnes, 
who realized in time what inflation was going to 
mean, and took steps to meet it. 

^ R. Lewinsohn, Histoire de Vlnfiation* Paris 19263 p. 56. 



Morgan’s Monopoly 

The United States possessed in abundance most of 
the things which Europe needed. In spite of the 
lack of shipping, difficulties in transport could be 
overcome. There was only one problem to solve: 
in what way were the belligerents to pay for their 
purchases? England, as we saw in Chapter II, was 
the first of the Allies to get over the difficulty by 
making all her purchases through J. P. Morgan, who 
was in a position to arrange for their financing. 
Morgan’s partner, Henry P. Davison, is generally 
given the credit for this plan. The deal was con- 
cluded at the end of January 1915, and Morgan 
was officially appointed commercial agent of the 
British Government in the United States, with 
exclusive control over aU purchases there. This 
was the biggest contract that had ever been 

A monopoly such as this was bound to give rise to 
criticism both in England and America. Both co\m- 
tries beheved, at all events theoretically, in free 
competition. In the United States there were a 
whole series of laws in existence whose object was to 
prevent monopolies. But Davison was just the man 
to get over such obstacles. Before the war, when 
the Senate started an enquiry into Morgan’s money 
trust, it was Davison who had pleaded the cause of 
the old John Pierpont Morgan. This time too he 
managed to get roxmd every difficulty. He even 
came over to London to soothe importers who 



regarded Morgan’s monopoly as an infringement of 
their rights. In parliament, Lloyd George, then 
Chancellor of the Exchequer, stoutly defended the 

Lloyd George went further still and warmly re- 
commended the allied powers to take the same course. 
To unify as far as possible orders for war material, 
a conference of finance ministers of France, Russia 
and England met in Paris early in February 1915. 
Although it was too early to judge the success of the 
scheme, Lloyd George nevertheless insisted that both 
France and Russia should conclude similar contracts 
with Morgan’s bank.^ 

Although the methods by which France had so far 
made her purchases in America had been none too 
successful, the French Government did not jump at 
the suggested monopoly. The question was sub- 
mitted to a detailed examination which lasted several 

Meanwhile J. P. Morgan had come himself to 
Europe. But he was in no hurry to sign contracts 
with the Allied governments. He did not wish to 
accept the post of commercial agent for the French 
Government until France and England had come to 
an arrangement about the financing of orders. On 
April 30th, 1915, this matter was settled, and France 
signed a contract with Morgan very similar to that 
which England had signed. It is true that all orders 
placed or contracts signed by Morgan in the United 
States were subject to the approval of the French 

^ Lucien Petit, Histoire des finances extirieures de la France pendant la 
guerre. Paris, p. 335. 



Government. But this reservation did not really 
interfere to any extent with Morgan’s extraordinary 

When Morgan came to place his orders, he did 
not do so indiscriminately. He would not have been 
the business man he was if he had not addressed 
himself in the first place to those firms which were 
under the control of his own bank. Some of the 
orders he placed with them ran into many millions 
of dollars. One order alone is said to have amounted 
to 67 million dollars. 

Up to the summer of 1917, when the American 
Government began itself to take a hand in the 
question of war supplies, orders from the Allies to 
the tune of 3000 million dollars had passed through 
Morgan’s hands. The Senate Commission enquiring 
into the trade in arms got an indignant denial from 
Morgan to the suggestion that he was in any way 
responsible for bringing America into the war. His 
argument: “Getting mto the war meant we would 
lose that business” was certainly not without its 
logic. “Nobody could hate war more than I do,” 
he told the Commission. But the profits he drew 
from his monopolies must sxirely have softened a 
little this hatred. According to his own version, he 
received a commission of 1% on the orders placed 
for the English and French Governments, which 
would mean his getting 30 million dollars. But this 
is a somewhat conservative figure. According to the 
Commission itself, Morgan received ij% on English 
orders, totalling nearly 1500 million dollars, and just 
over 1% on French orders, totalling 1000 million. 



Besides the busiaess done with England and France, 
a considerable amount was done by him with Russia, 
Italy and Canada. 

The commissions he received, however, were only 
one source of profit. Morgan must have made at 
least as much again in trading with himself, that is 
to say in placing orders with companies of which he 
was a shareholder. Indeed, the remarkable thing 
about the whole business is that a monopoly of this 
sort should be given to one who was both buyer and 
seller at the same time. 

The efficiency of Morgan in organizing army sup- 
plies for the Allies has often been extolled, and it is 
quite certain that both as financier and industrial 
organizer he did much useful work, but the question 
remains whether this centralized system of purchases 
was as economical for the Allies as Lloyd George 
made out. As to whether the allied governments 
could have done better by buying direct instead of 
through Morgan, only guesses can be made. One 
thing, however, is certain : that Morgan, though the 
agent of the Allies, made no effort to beat down 
the prices of the goods he was buying for them. In 
fact it was just in those branches of industry where 
he was himself an interested and influential party 
that the rise in prices was most considerable. The 
export prices, for instance, of iron and steel rose 
to four times what they had been; and the 
principal source of these products was the United 
States Steel Corporation which Morgan himself 



War Millionaires in America 

The export of arms and munitions, and raw 
material for the manufacture of these in Europe, 
amounted to only just over half the total exports 
destined for the allied armies. The remainder was 
chiefly concerned with food and clothing. The pro- 
portion of the latter exports to France was somewhat 
higher than for England. Between 1915 and 1918 
French imports from the States were 3600 million 
francs in cereals and 3000 million francs in cotton, 
the total of these sums being about equal to imports 
of arms, munitions, etc. 

The huge sums paid by the Allies for agricultural 
produce was due not only to the large quantities 
required but still more to the continual rise in prices. 
Prices of cereals had already risen ■ 350% when in 
1917 the American Government intervened, fixing 
the price at 250% above the 1914 level. The profits 
which these high prices represented were, it is true, 
spread amongst millions of farmers. All the same, a 
considerable part went into the pockets of speculators 
and middlemen. The canning industry too made 
huge sums of money. The profits of the four 
largest concerns in Chicago, Armour’s, Swift’s, 
Morris’s and Cudahay’s, rose from 19 million dollars 
before the war to 36 million in 1915, 55 million 
in 1916, and 87 million in 1917. In this last year, 
Morris’s profits were two and half times its share 

Accustomed as Americans were to bursts of hectic 

0 , 



prosperity, the war boom appeared to them un- 
precedented. Even the old men, who could remember 
the delirious days of the Civil War, were overwhelmed 
by the spectacle of this flood of profits. And this 
time fortunes could be made with every honesty and 
scruple. It was not necessary to sell unserviceable 
rifles or diseased horses. Merchants could deliver 
the goods and do it handsomely, the price paid was 
always more handsome still. 

Nevertheless, the popular idea that everyone in 
America did weU out of the war must not be taken 
too literally. Wages rose in America as elsewhere, 
but not always as fast as prices, so that their pur- 
chasing power might even be reduced. All the more 
striking was the prosperity enjoyed on the capitalist 
side of the fence. 

Sixteen years after the war the Senate Commission 
published a list of persons whose taxable income was 
over a million dollars a year during or just after the 
war. The list contained 181 names. Some of these 
millionaires protested loudly at being included in a 
list of war profiteers. Indeed, it would be unjust to 
put in this category some of the older families whose 
fortunes had existed for generations, such for instance 
as the Astors. Nevertheless, when figures for different 
years are compared one can get a good idea of the 
rise and fall of war prosperity. 

In 1915 there were 64 people in this taxation 
class. In 1916 there were 108. In 1917, at the 
height of war prosperity, there were 129. In 1918, 
what with price control and, at the end, the diminu- 
tion of war orders, the figure feU to 73. The year 


following it fell again to 65, and then, as prices fell, 
these large fortunes diminished rapidly. F ew additions 
came to swell the list after the war, while many 
names, including Morgan’s, dropped out. By 1920 
it had fallen to 29. 

Total Profits of the War 

To get an idea of the total profits which were due 
to the war we must consider the money collected by 
taxes on excess profits. With the exception of England, 
such taxation was not introduced until 1916, so that 
it is only for the later years that figures may be 
given. In America, up to the end of 1918, these 
taxes brought in a total of 5500 million dollars, in 
England 2000 million dollars, in Germany nearly 
1000 million dollars. Assuming the tax to be 40% 
of the profit, which is if anything an overestimation, 
we get, for these coxmtries alone, total declared war 
profits of 20,000 million dollars. Then in France 
taxation on war profits for 1917 and 1918 brought 
in roughly 1000 million gold francs; in Austria 
1200 million crowns was collected, in Holland 800 
million florins, in Switzerland 500 million francs. 
And in these countries at most a third of war profits 
was paid by the tax-payer. In other countries too 
war profits were considerable, in Spain for instance, 
where the tax was minimal. 

When all coimtries are taken into account a grand 
total may be roughly estimated. This total of war 
profits earned by both belligerents and neutrals may 
be put at 30,000 million dollars at the absolute 

244 the profits OF WAR 

minimum, which is about ^10,000,000,000 in English 
currency to-day. Of this, one-third at the most was 
taken by the tax-collector. 

Of this total profit, a considerable part, though 
certainly less than half, arose directly or indirectly 
from the execution of government orders. The last 
war, indeed, witnessed the grand renaissance of 
government contractors. Once more governments 
resorted to a system long ago condenmed and then 
almost forgotten — the grant of monopolies. With the 
style of commercial agent the obsolete munitionnaire 
giniral once more appeared on the stage, the part 
being played by John Pierpont Morgan. 

Though he was unquestionably the star, the same 
part was played on a smaller scale in the European 
countries that were at war. The risks contractors 
ran were far less than they had been in Ouvrard’s 
time; in fact they ran no personal risk at all, for 
there was now no Napoleon to clap them in prison 
instead of paying them. Not one of the big contractors 
was prosecuted. If some of those who made fortunes 
in the war, like Gliickstadt in Denmark, ended badly, 
it was not because they made too much but because 
they did not make enough. Deliveries to Russia 
were the only cause of serious losses. Leaving arma- 
ment firms aside, neither the political upheaval in 
Germany and Austria in 1918 nor the treaties of 
peace inflicted serious injury on the dealers in war 

If this side of war-time business has been dealt 
with at some length, it is because public opinion 
has shown till now very little interest in it. It has 



risen in anger against the makers of arms and muni- 
tions, but paid little attention to those who provide 
the raw material for these products, and those who 
supply corned beef, military cloth, boots, oil and 
petrol, and the thousand other things required by a 
modern army. In a future war, these needs will not 
be less, if anything the contrary. They will all be 
wanted, and wanted so badly that war-time prices 
will readily be paid for them. Thus when we come 
to enquire who are the various parties who have, 
in fact, a financial interest in war, we find in the 
contractors a class whose importance must not be 



The Nature of War Speculation 

The general conducting operations in the field, the 
financier who finds the money to pay for a campaign, 
the maker of gims, and the purveyor of provisions — 
all these may say in justification of the profits they 
make that they are no more than just reward for 
services rendered, though whether the service is com- 
mensurate with the reward is a point about which 
opinions may differ. We come now to consider a 
special class of profits, special because in this case 
no such claim can be made. The speculator as 
such renders no services whatsoever. The success 
of his deals contributes nothing to the success of a 

The word speculation, particularly when applied 
to the economics of modem war, is used in such a 
variety of senses that it would be as well to define 
it. When a manufacturer who has always made 
stove-pipes starts making shells in war-time, seeing 
the chance of greater profit, there is in this new 
departure an element of speculation. In fact, in this 
sense of the word, speculation is never entirely absent 
from all business enterprise. But it is not in that 
sense that the word is used in this chapter, but in the 




narrower and stricter sense: speculation is business 
based on price fluctuations. 

The typical speculator produces nothing. Nor, like 
the merchant, does he provide goods to those that 
want them. Indeed, goods themselves have for him 
no real intrinsic interest. What interests him is that 
the price of a thing differs at two different places or 
at two different moments. His business is solely to 
make a profit out of this variation in price. 

A war naturally provides excellent opportunities 
for operations of this kind. For every war upsets the 
standards of value that have been established and 
sets up new ones in their place. Products which are 
one day superfluous are in great demand the next; 
goods urgently needed for the prosecution of a war 
are practically worthless when the last shot has been 
fired. War speculation is based on the attempt to 
guess the answers to certain questions : Will there be 
war? When will it end? Who will win? What 
will be the terms of peace? There are many others, 
but these are perhaps the most important. These 
questions are important enough and difficult enough, 
yet it would be a mistake to imagine that specula- 
tion is based on any profound or penetrating spirit of 
enquiry. More often than not it is merely guesswork, 
and in war as in peace many are the speculators who 
owe this success to calculations which in themselves 
were false. 

A primitive form of speculation which would not 
come within our definition is betting, but it may 
none the less be mentioned. It is probable that bets 
on the outcome of a war were made in ancient times 


considering the efforts that were made to read the 
future and the prosperity enjoyed by all prophetic 
undertakings. Certainly traces of betting may be 
found during the naval wars of the sixteenth and 
seventeenth centuries, Dutch merchants used to bet 
on whether ships would arrive safely in port or fall 
a prey to storms, pirates, or the attack of enemies. 
And the companies owning the ships would see their 
shares rise or fall in response to news, good or bad, 
that some captain would bring back from Asia or 
South America, We have here the germ of the war 
speculation of later times which only took definite 
shape in the course of the nineteenth century, and 
which culminated in the last war. 

Speculation in Government Stock 

It was not long before speculation was extended to 
military operations on land, war loans providing the 
first object of speculative operations. Here, too, the 
Dutch were pioneers. In 1672, while at war with 
England, Holland found it necessary to issue a war 
loan to subsidize her allies, Austria and Brandenburg, 
This stock immediately became the object of frantic 
speculation, its value fluctuating with every turn in 
the campaign. When the flooded regions of the 
Netherlands froze, allowing the enemy to advance on 
the ice, the stock fell to half its nominal value. Then 
when the thaw came to impede manoeuvring, it 
jumped up from 50 to 80%, 

During the next two centuries every war was 
accompanied by speculation in government stocks. 



though on no very great scale. Apart from a few 
exceptional periods, up to the end of the eighteenth 
century their operations were for the most part 
confined to a handful of professional speculators, 
though the sums won and lost were for these indi- 
viduals very considerable. What mattered, however, 
to governments was the loss of prestige occasioned 
by a fall in stock quotations after every battle lost. 
In England radical measures were undertaken to 
put an end to war speculation, a ban being placed 
on the buying or selling of stocks for forward delivery. 
This ban was in force down to i860, though it was 
not long before speculators had found means of 
eluding it. 

The French Government tried to counter the 
effects of private speculation by itself entering the 
field. In these operations Napoleon showed remark- 
ably little skill. In spite of his contempt for financiers 
and speculators, he attached considerable import- 
ance to the value of rentes on the Bourse, regarding it 
as a gauge of the credit of the State. Accordingly he 
intervened on several occasions to keep up to the 
price; but his action failed to achieve the desired 
result and cost the treasury a lot of money. In 1803, 
after England’s declaration of war, rentes fell on the 
Bourse, and the government spent 12 million francs 
without succeeding in arresting the movement. At 
the beginning of the war with Spain, Napoleon, 
disregarding Mollicn’s advice, decided that the 5% 
rente must not be allowed to fall below 80%. With 
this aim, 30 million francs was spent, but once again 
the intervention failed. 



Far from stopping speculation, it seems that govern- 
ment intervention of this kind only succeeds in making 
it still more speculative. That the government is 
trying to sustain the market will be known to all, but 
how long it will persist, and what success it will have, 
remain uncertain. During the Napoleonic wars, 
crashes were frequent on the Paris Bourse. One of 
the most serious was that which occurred in June 
1809 during Napoleon’s Austrian campaign, after 
the heavy engagements of Aspern and Essling, but 
before the decisive French victory of Wagram. 
Regnier, a heavy speculator, had bought a large 
quantity of rentes for forward delivery, but the cam- 
paign being so far undecisive, stocks fell, and at the 
day of settlement he was imable to meet his engage- 
ments. This failure caused havoc all round. There 
were several bankruptcies and a suicide. Brokers 
who had extended large credits to Regnier were com- 
pletely ruined. Regnier, however, managed to sur- 
vive the crash without himself suffering very seriously.^ 

Francs and Sterling 

Speculation in foreign exchanges also flourished 
under the Empire. Most of the bankers could still 
remember the assignats of the Revolution and so were 
well versed in the art of making money on a falling 
currency. Although fluctuations were now much 
slighter, they were still sufficient to provide a good 
margin of profit. Sometimes it was the franc, some- 
times the English pound which was threatened, 

^ Jules Bertaut, La Bourse. Paris 1933^ p. 27. 



Money changed at the right moment and later 
changed back again was lucrative business. 

The great expert in this field was the banker, 
Jacques Laffitte. He brought off his first big deal 
when acting for Perregaux’s bank in the troubled 
year of 1805. The Bank of France was passing 
through a critical time and bank-notes had fallen to 
12% of their value. Laffitte’s chief, Perregaux, was 
at the same time at the head of the Bank of France. 
He was already on the verge of senile decay and was 
extremely pessimistic, believing that bank-notes were 
going the same way as the assignats. Accordingly he 
wanted his own bank to lay in a stock of foreign notes. 
But Laffitte looked at the situation more coolly and 
more shrewdly than the governor of the bank of 
issue. In spite of the French defeat at Trafalgar, he 
bought not pounds but francs. His judgment was 
subsequently proved to be sound. A few months 
later, after the victory of Austerlitz, the monetary 
panic subsided and the franc recovered its old rate. 

Naturally it was not only the franc that Laffitte was 
ready to support. If he saw a chance of makiag a 
profit he was just as ready to buy “enemy” cur- 
rencies. As a result of the Continental Blockade, the 
English pound fell to two-thirds of its proper value. 
Laffitte saw his opportunity and bought 3^400,000 at 
the rate of 1 7 francs to the pound. He felt sure that 
the day would come when Napoleon would be 
obliged to make peace with England — if not as the 
conqueror, then as the conquered — and when that 
happened the pound could not fail to rise. When 
Napoleon’s power declined, Laffitte’s foresight was 



rewarded. In a day he sold all his English money 
at rates between 20 to 21 francs, thus making nearly 
one and a half million francs. Incidentally, the man 
he sold them to was Count de Peyronnet, whom 
Laffitte was later to meet again in another field. De 
Peyronnet also did well on the deal as the pound 
continued to rise. 

Speculation reached its height during the last 
phase of Napoleon’s reign. During the Hundred 
Days the Paris Bourse reflected every hope and every 
apprehension. The first transports of joy brought 
rentes up to 70%. Ouvrard, who had just been given 
stock at 50% in exchange for a credit, had just time 
to sell out at a huge profit. But when it was seen 
that the Allies refused to accept the return of 
Napoleon, and were ready to renew the war, stock 
was thrown on to the market and rentes fell to 20%. 

In London too the Stock Exchange was anxious, 
being far from certain of an English victory. This 
lack of confidence was reflected in the value of the 
pound. After Napoleon’s first exile, the poimd had 
almost regained parity with other currencies, but 
now, on the eve of Waterloo, it dropped 15%. The 
only financier who was absolutely sure of the issue 
was Nathan Rothschild. Legends abound concern- 
ing his deahngs on the Stock Exchange during the 
critical days of Waterloo. 

According to one version, Nathan Rothschild went 
in person to Belgium to be near the English army and 
get at first hand news of the result. As soon as 
Napoleon’s defeat was certain, he set off at the gallop 
to Brussels and then on to Ostend, where he jumped 


into the first ship to leave. After a tempestuous 
crossing, he was to be found next morning silent and 
inscrutable in his usual place in the Stock Exchange. 
When asked for news, he simply shrugged his shoulders 
with a resigned air, and, as his family were known to 
be hostile to Napoleon, this was taken to mean that 
the latter had gained the day. Stocks were thrown 
on the market, and Rothschild, acting through an 
intermediary, was able to buy all he wanted. When 
reports finally came through from the Continent and 
prices soared, he had made no less than a million 

It seems, however, that history was not after all 
quite so romantic. According to recent studies, 
Rothschild did not set foot on the Continent. Nor 
was it necessary for him to shrug his shoulders for 
prices to fall. It was known that, two days before 
Waterloo, Napoleon had successfully engaged Bliicher 
at Ligny, and as far as was known the military 
situation was none too favourable to the Allies. 

But it is certainly true that Rothschild was better 
informed than anybody else. One of his many agents 
scattered through the world was situated at Ostend 
waiting for news from the battle-field. A Dutch 
paper announcing the result fell into his hands just 
as a ship was leaving for England. This brought 
the news to Rothschild before even it came to the 
ears of the government, and he was able to make 
good use of it on the Stock Exchange. 

Though he certainly made money in this way, he 
made considerably more on foreign exchanges. For 
directly after Waterloo the pound leapt upwards, so 

254 the profits OF WAR 

that the sums which he had lent the Allies in de- 
preciated pounds were now due for repayment in 
pounds that were back at parity. This was not at 
all to the liking of the ministers of finance in Berlin 
and Vienna, but in the end they got off lightly, as 
the British Government made a generous gesture, 
offering to pay the difference in the rate. Thus 
Rothschild’s confidence in England and the English 
pound was handsomely rewarded. 

The July Revolution 

Fifteen years after Waterloo, another critical 
moment arrived in France. This time it was not a 
foreign enemy which threatened, but civil war. The 
speculators in English pounds, de Peyronnet and 
Laffitte, were once more on the scene, this time in 
political roles. De Peyronnet was now minister of the 
interior in the reactionary government of Charles X. 
The great majority of the newly elected parliament 
were opposed to the government, and the latter as a 
last resort fell back on the promulgation of Ordon- 
nances, i.e. unconstitutional decrees whose object was 
to stifle the opposition. In the ranks of the latter was 
the banker Laffitte, who had for long been a deputy, 
and was now leader of the liberals. His real aim 
was to place the Duke of Orleans on the throne, at 
the same time gettmg power for himself. 

The Rothschilds, who in France also had in the 
meantime become official bankers to the government, 
watched the storm brewing with great anxiety. 
Salomon Rothschild, the Viennese brother, came in 



all haste to Paris to find out what was happening. 
Things were indeed serious enough for the Roths- 
childs, As we have seen, they had undertaken the 
issue of a government loan at a veiy high rate, I02f , 
and a great part of it was still on their hands. If 
civil war broke out, government stock was bound to 
fall abruptly. As a matter of fact the Rothschilds’ 
fears did not go so far as this. In their view the 
government might fall, but an attack on the King 
and the establishment of a new regime seemed to 
them impossible. 

The man who judged the situation most accurately 
was Ouvrard. He had only been out of prison six 
months, but his agents were once more listened to, 
both in official circles and in the opposition group. 
At once the most energetic and the shrewdest financier 
of the day, Ouvrard immediately planned his cam- 
paign. Certainly government stock was going to 
fall. But a town menaced with open revolt was 
hardly a suitable place for business. The Bourse 
might easily be closed. It might even happen that, 
with communist agitation, capitalists themselves might 
be attacked. It would, accordingly, be much better 
to conduct operations abroad. It was possible to 
deal in rentes in London. So Ouvrard went there in 
the middle of July 1830, and started bear operations. 
Nathan Rothschild was horrified to see the steady 
sale of stock, with the price going lower and lower. 
Before long he found out who the seller was. This 
startled him. Had his brothers misinformed him on 
the situation? Or was Ouvrard playing a dangerous 
game? However that might be, he saw nothing for 


it but to buy the stock Ouvrard was selling, so as to 
keep the price from falling still lower. Meanwhile, 
he tried to get further news from Paris. 

In response to Nathan’s enquiries, James Roths- 
child, head of the Paris house, went to de Peyronnet 
and asked him straight out whether there was any 
truth in the rumours of an imminent coup d’itat. 
De Peyronnet assured him that all such rumours 
were baseless. He even showed him the documents 
addressed to the new deputies convoking the first 
meeting of the Chamber, and insisted that every- 
thing was going to be done according to constitutional 
procedure. James Rothschild accepted these assur- 
ances and passed them on to Nathan in London. 

The very next day the Ordomances were issued 
which suspended constitutional rights. Moreover 
they were signed by de Peyronnet himself. The 
population was furious. The streets of Paris were 
barricaded, and for three days a sanguinary struggle 
was fought out, ending in the complete triumph 
of the Revolution. The King abdicated and fled 
to England. Ministers were prosecuted, and de 
Peyronnet was condemned to penal servitude for 
life, though he was finally liberated in 1836. Laffitte’s 
star was now in the ascendant. His protege, the 
Duke of Orleans, now came to the throne as Louis- 
Philippe, establishing a bourgeois regime. Laffitte was 
asked to form a cabinet. This he at first refused, 
but he accepted the ministry of finance, and later in 
the same year he became prime minister. 

Reactions on the exchanges were exactly what 
Ouvrard had foreseen. While fighting continued in 


the streets of Paris, rentes were thrown on to the 
market in such quantities that the price fell 20 
to 30%- Ouvrard’s operations succeeded per- 
fectly and he made some millions of francs. Far 
greater, however, than his profits were the Rothschilds’ 
losses. They themselves estimated that the July 
Revolution had cost them 41 million francs. In fact, 
as a result of the Revolution and Ouvrard’s attack 
on the rentes, the Rothschilds found themselves for 
the first and only time in serious difficulties. 

Talleyrand as Speculator 

So much of speculation turns on political events, 
that to be well informed politically is an asset of the 
greatest value. Accordingly it is not surprising that 
politicians themselves have turned to good account 
their inside information. 

In the biographies of celebrated statesmen this 
subject is not stressed. If it is mentioned at all, it 
is rather to excuse a human failing, and many are 
the reasons that have been advanced in the attempt 
to whitewash their financial dealings. We need not 
enumerate them. For us it suffices that like other 
mortals — or even immortals; Rembrandt, Voltaire, 
Gluck, Rossini and many more — ^great statesmen have 
engaged in speculation with the principal object of 
making a lot of money with very little trouble. If 
the instinct for gaming is also there, so is it with all 
speculators. There is no reason on that account to 
put statesmen in a special category. 

Talleyrand is generally regarded as the model of 




the speculating statesman. In spite of the heavy 
expenses entailed by the luxurious hfe he led, Talley- 
rand was able under Napoleon to amass a fortune 
of 50 million francs. It is true that he drew a large 
income from his various offices. He also received 
substantial sums from various princes when the map 
of Germany was being recast after the Treaty of 
Luneville, and on other similar occasions. But these 
sources were far from adequate to account for his 
wealth. It is certain that throughout his life, in peace 
and in war, Talleyrand made a practice of using 
his information on affairs of State for the purposes 
of private speculation. 

His most lucrative deals were probably those done 
while he was in charge of foreign affairs under the 
First Consul. His speculations at this time were 
closely connected with his diplomatic work. After 
the Austrians had been defeated at Marengo, Talley- 
rand succeeded in persuading Count Joseph Saint- 
Julien to sign a preliminary treaty of peace contrary 
to his instructions from Vienna. The Austrian 
Government refused to ratify the treaty, and it was 
only after further military operations and diplomatic 
overtures that peace was finally concluded. It is 
just such occasions as this, hovering between peace 
and war, that offer the initiate the most fruitful 
opportunities for speculation. 

It has been maintained that, during this brief 
period of uncertainty, Talleyrand made 7,500,000 
francs by speculating m government stock. Probably, 
this figure is exaggerated like so many others which 
historians ignorant of all financial matters quote glibly 



in their books. The market for loans was too restricted 
at that moment for such a profit to have been likely. 

The figures quoted of another deal a few months 
later sound far more credible. During the negotia- 
tions preceding the Treaty of Luneville, France 
insisted that Austria should pay in full the loans she 
had raised in the Belgian provinces. Talleyrand 
made haste to buy up as much as possible of this 
stock whose value had greatly depreciated. Naturally 
when the arrangement that had been concluded was 
published, the loans jumped at once, Talleyrand 
making nearly 7 million francs on the rise. French 
rentes were also affected and he made on this too. 
His dealings, however, were not always so fortunate. 
A deal entered into on the eve of the Treaty of Amiens, 
signed by France and England in 1802, did not come 
off and Talleyrand on this occasion lost 2 million 

His contemporaries, particularly foreign diplomats, 
were not unaware of the private dealings of this 
minister for foreign affairs. Rightly or wrongly, it 
was suspected that his political decisions were not 
uninfluenced by his interests at the moment on the 
exchanges. Thus during the summer of 1801, the 
British Government refused to negotiate with him 
on the grounds that he was at the time engaged in 
speculations in English Government stocks. Two 
years later, when hostilities once more broke out 
between France and England, Russia tried in vain 
to stop the conflict. According to the Russian 
ambassador in Paris, these efforts were rendered 

^ G. Lacour-Gayetj Talleyrand. Paris 1930, voL ii, p. 73. 


abortive by Talleyrand to suit his own purpose. It 
seems that the latter was engaged in bear operations, 
and that war was necessary for their success. 

Nevertheless, it has not yet been definitely proved 
that Talleyrand sacrificed the interests of his country 
to his own, however much his dealings may have 
lacked propriety. There is certainly no doubt of the 
fact that all through the Napoleonic wars he was 
continually gambling on EngUsh currency and English 
stocks, nor was he always gambhng on their fall. 
Already in 1805, he opened an account with Laflfitte 
in sterling, thus taking precautions against anything 
that might happen to the franc. 

Napoleon knew pretty well what Talleyrand was 
doing, and naturally objected. That was one of the 
reasons why he could never trust his foreign minister 
completely. Nevertheless Talleyrand’s diplomatic 
gifts were such that Napoleon did not feel able to 
dispense with his services. After a rupture which 
lasted some time, Napoleon once more sought Talley- 
rand’s collaboration on the eve of the Russian cam- 
paign. Rather precipitately, he appointed him 
ambassador to the new kingdom of Poland which 
he proposed to re-establish. But when he got wind 
of Talleyrand’s operations on the Bourse of Vienna, 
where the latter was speculating heavily in Austrian 
loans, his mistrust was evoked once more and he 
cancelled the appointment. After the disastrous 
campaign in Russia Napoleon swallowed his scruples 
and offered Talleyrand the ministry of foreign affairs. 
But now it was Talleyrand’s turn to refuse, for he 
regarded the Emperor’s career as at an end. Both 


as politician and as speculator, he was now banking 
on Napoleon’s adversaries. 

Under the first Restoration Talleyrand again 
reaped an abundant harvest. As foreign minister to 
the Bourbons, there were many pickings for him and 
he also made a great deal on the Bourse. In order to 
sustain the credit of the restored monarchy, it was 
determined to force up the price of rentes. The 
treasury set aside 3 million francs for the purpose, and 
Talleyrand and other notables undertook to support 
each other in buying for a rise. They bought up 
between them all the rentes that were for sale. When 
the price rose, the public started buying too, and 
Talleyrand and his group could withdraw. The 
profit they made amounted to 16 million francs, of 
which 6,400,000 was Talleyrand’s share. 

During the last phase of his diplomatic career, 
when he was ambassador in London, he still remained 
a devotee of speculation. His relations with the 
Rothschilds were friendly and also valuable. He 
was prepared to accept their money,^ but he could 
do without their advice. For, if all his dealings were 
known, it would probably be found that he had in 
course of his life made considerably more on the 
exchanges than the cleverest of the five Frankfort 

Bismarck accused of Speculating 

Amongst speculating statesmen Talleyrand was 
certainly one of the most successful. Indeed success 

^ Conte Corti, La Maison Rothschild. Paris 1929, 



has been rather the exception than the rule. It is 
well known, for instance, that Cavour, the organizer 
of the unification of Italy, was engaged from his youth 
in speculative operations, but often with most un- 
fortunate results. 

Benjamin Disraeli was hardly more successful. He 
was still quite a young man when he plunged into a 
speculation in South American stocks at a moment 
when the Spanish colonies were struggling for their 
independence. He won and lost alternately until 
the crash on the Stock Exchange in 1825, when he 
lost ;^7000, a sum considerably greater than his 
total fortune. As a result of this unhappy deal 
Disraeh was for years crippled by debt, and it 
was only after a wealthy marriage that his affairs 
were straightened out. It seems that this early 
experience cured him for good of any desire for 

On the other hand, the question has been much 
discussed, particularly after 1870, whether Bismarck 
made use of his political information to engage in 
speculation through his banker Bleichrbder. The 
question has been the subject of violent polemics and 
even actions in the courts, but has never been entirely 
cleared up. Bleichrbder was not only banker to the 
Court and to the Prussian Government, but he also 
handled Bismarck’s personal fortune. He was a 
close friend of Bismarck’s, visited him frequently, and 
was in fact the only man who could enter Bismarck’s 
study unannounced. It seems, however, that at 
these interviews, Bismarck made a point of avoiding 
aU discussions of his private financial affairs. He knew 


his business was in good hands and did not bother 
about it. 

When his relations with Bleichroder became the 
subject of attack, he sold out his Russian holdings, 
and subsequently he declared on several occasions 
that a minister of foreign affairs ought not to have 
money invested abroad.^ But earlier in his career, 
he had not been quite so scrupulous. In 1856 war 
threatened to break out between Prussia and Switzer- 
land concerning the Canton of Neuchatel. In 
Berlin a campaign had been thoroughly prepared 
for the reconquest of this territory which had formerly 
belonged to Prussia. Nothing was, however, to be 
done without French approval. It was to sound the 
French Government that Bismarck, then Prussian 
representative in the Diet of Frankfort, was sent on 
a special mission to Paris. 

Bismarck had already received reliable information 
according to which Napoleon III would raise no 
objection to the Prussian plan. He thus regarded 
war as fairly certain. He went to Rothschild’s in 
Frankfort and, although Rothschild advised against 
it, he gave instructions for the sale of all his holdings 
that could be adversely affected by war. Having 
thus taken all precautions, he set out for Paris, where 
everything turned out just as he had expected. 

In the meantime the King of Prussia, Frederick 
William IV, always indecisive and inconstant, had 
changed his mind. In consideration for the feelings 
of Austria and England, he cancelled the proposed 

^ R, Lewinsohii, U argent dans la politique. 4th ed» Paris 1931, 

p. 36. 


campaign, Bismarck had good reason to be sorry 
that he had not followed Rothschild’s advice for he 
lost a large sum of money.^ Having paid dearly for 
his lesson, it would seem that Bismarck never again 
went in for speculation of a “diplomatic” nature, at 
any rate not on his own initiative. 

The Prussian General Staff 

It was quite otherwise with those in Bismarck’s 
entourage amongst whom speculation flourished. At 
Court and at the foreign ministry, the buying and 
selling of stocks was regularly carried out in anticipa- 
tion of major political events. These dealings were 
on a scale which altogether outdistanced the political 
speculation of Napoleon’s days. 

The Franco-Prussian War provided a good oppor- 
tunity to political speculators. The political events 
leading up to it, particularly Bismarck’s famous 
telegram from Ems, which was designed to force 
France to take the role of aggressor, let loose a veritable 
panic in Berlin. The public lost its head, and threw 
on to the market stocks and shares of every description, 
regardless of whether they were Prussian or foreign. 
Quotations fell 20 or 30%, some even further. In 
the general excitement, all prices fell: American 
bonds, English pounds, and, quite illogically, even 
raw materials. 

It was only after the Prussian troops began to 
penetrate into French territory that people in Berlin 
began buying for a rise. After the battle of Sedan 

^ Conte Corti, La Mamn Rothschild, Paris 1929. 


prices once more rose to normal. An early peace 
was expected, when prices were counted on to rise. 
But the siege of Paris lasted longer than was expected, 
the Berlin Bourse was discouraged and prices weakened 
once again. These ups and downs, however, did not 
affect the political speculators who were waiting for 
the right moment to strike. In a letter dated Sep- 
tember 30th, 1870, a Prussian Court official wrote 
as follows to his Berlin banker: “When peace is 
imminent, I will send you a telegram saying : ‘ Please 
send cigars.’ You will then perhaps have time to do 

Months passed before it was possible to “do some- 
thing.” Then on January 23rd, 1871, the French 
foreign minister, Jules Favre, appeared at last at 
Prussian headquarters to make overtures for an 
armistice. Negotiations were kept strictly secret — 
all the better for the speculators. The next day the 
telegram was despatched from Versailles: “Please 
send cigars for His Royal Highness.” 

This speculator had, at least, some thought for the 
proprieties. Others at headquarters were more 
cynical. The same day one of them sent the following 
telegram to his Berlin banker: “If prices have not 
appreciably risen, buy me to-day everything you 
can.” An explanatory letter followed which ran: 
“I telegraphed to you this morning to buy, as in- 
formation that I have received concerning Jules 
Favre, who has been here since yesterday, make me 
feel certain that the capitulation of Paris is imminent ; 
and in all probability prices will rise on the Bourse. 
Just how far prices will rise and what will be the 



right moment to sell, are questions on which I will 
if possible give you my opinion, but I beg you to use 
your own discretion in the matter. Let me know 
what you have bought to-day, so that I can have an 
idea of the situation.” 

Four days later, an armistice was signed and a sharp 
rise followed on the Berlin Bourse. 

Baron von Holstein 

During the period following the Franco-Prussian 
War, the greatest speculator in Bismarck’s entourage 
was one of the last people public opinion would have 
suspected, namely Baron von Holstein. This disciple 
and protege of Bismarck’s was never a minister, but 
as head of the political department of the German 
foreign office he exerted considerable influence on 
German policy during the last ten years of Bismarck’s 
government, and a good deal more after the latter’s 
fall. He kept apart from the brilliant society at the 
Kaiser’s Court ; it was in the seclusion of his office 
in the ministry that he quietly wove his intrigues. 
He knew all, but told nothing : that was the secret of 
his power. 

The only person that he kept quickly and regularly 
informed of political events seems to have been his 
banker, Emil Heymann, partner in the Bank of 
Meyer-Cohn, who carried through Holstein’s deals 
on the Bourse. But, unlike Bismarck, Holstein was 
far from giving his banker carte blanche in the handling 
of his affairs. On the contrary, he controlled every 
operation himself. Almost daily, sometimes as often 


as two or three times a day, Heymann would receive 
notes containing the latest information that could 
aifect the Bourse. Often these notes would be followed 
by orders to buy or sell. For thirty years there was 
hardly an important event in any country that was 
not used by Holstein either to buy for a rise or sell 
for a fall. He dealt in everything : foreign exchanges, 
bonds, and shares. He speculated on every kind of 
event at home or abroad ; on epidemics, on famines, 
but of course above all on war and peace. Particu- 
larly on this last question, his situation caused him 
to be better informed than other speculators. 

In 1887 he brought off a big deal when relations 
between Germany and Russia were very strained. 
It was thought in Berlin that Russia was preparing 
for war, and the general staff advised the German 
Government to undertake a preventive war. The 
old Moltke drew up a memoir, according to which 
war against Russia should be declared at once, even 
in mid-winter. Bismarck was against this plan, but 
he started an economic campaign against Russia 
forbidding the official banks to give credits on the 
security of Russian loans. As a result, these loans 
fell. Holstein was one of the few people who knew 
beforehand of the projected measure and he had 
instructed Heymann to engage in bear operations 
in Russian stocks. 

Speculations on peace and war were of course 
much more difficult when the issue did not depend 
on Berlin. Nevertheless, Holstein made use of what 
information he had. In 1894 the sudden death of 
the Sultan of Morocco gave rise to fears of grave 


complications. Holstein wrote to tell his banker to 
take advantage of any weakness on the Paris Bourse. 
“We know,” he wrote, “that civil war is almost 
certain. Probably it is not yet known at the Bourse. 
Make your decisions accordingly, but above all do 
not lose time.” 

The Boer War offered Holstein good scope for 
speculation. Some months before the declaration of 
war, he wrote to his banker: “If events take the 
course I hope, we shall make a lot of money during 
the next few weeks.” But events did not follow his 
predictions, and before the war actually broke out, 
Holstein, who had been selling shares in South 
African gold mines, had lost 22,000 marks. Nor did 
the war, when it finally came, take the course he 
desired. He was backing the English, but at the end 
of 1899 things seemed to be going in favour of the 
Boers, “Naturally, I feel no longer inclined to 
prophesy,” he wrote, “ but I am wondering how much 
I shall lose if things go wrong. The worst thing that 
could happen would be for peace to be concluded. 
I do not believe that will happen ; but if it does, it 
will be just the same as before the war. ... At the 
first ray of sunshine, prices will rise.” In the end 
Holstein was rewarded for having backed the winning 

Although most of his information was sound enough 
the results of his speculations were none too fortxmate. 
Soon after the fall of Bismarck, Holstein’s bank 
account showed a debit of some 300,000 marks. 
This debit, however, disappeared from the books on 
the same day as the head of the bank was decorated 


with a particularly high order, no doubt owing to 
Holstein’s intervention. It thus seems that up to 
that time he had lost a good deal more than he had 

This can be explained by the fact that, like nearly 
all statesmen who speculate, Holstein overestimated 
the influence of political events on prices and neglected 
that of other factors. Nevertheless, to judge from his 
correspondence,^ his war speculations were fortunate. 
It thus seems that he lost in peaceful years what he 
made out of wars or the threats of war. 

Speculation in the European War 

During the nineteenth century war speculation 
was for the most part confined to dealing in foreign 
exchanges and in government stocks. Speculation 
was based on the effects which the declaration, the 
conduct, and the issue of a war might have on the 
finances of a given state. The influence of war on 
private business was not considered by speculators 
to anything like the same degree. 

For one thing, former wars had far less effect on 
private business than had the war of 1914, with the 
enormous consumption of material that it involved. 
And in conformity with the individualistic ideas of 
the nineteenth century, governments, even in war- 
time, avoided as far as possible all interference with 
private trade. It is true that in most European 
countries all citizens, even those who were rich, were 
liable for military service. Nevertheless as capitalists, 

^ Holskiri^s Borsenbriefe, edited by Ernst Feder. Berlin 1925* 



they retained their freedom. If they were obliged 
to offer their lives to their countries, it was not so 
with their money. That they could keep; and they 
could do as they pleased with it. 

On the other hand, most of the businesses which 
profited directly from war were not yet limited com- 
panies whose shares were quoted on the exchanges, 
so they were not so accessible to speculation. Those 
who wished to make money from war trade must 
take to trade themselves, supplying arms or munitions, 
provisions, or other military stores. Business done 
from a distance, without actually trading, simply on 
the fluctuation of prices, only began to assume con- 
siderable dimensions during the last years of the 

It was quite otherwise during the last war. Then 
there were innumerable ways of making war profits 
simply by speculating on the stock markets. Of 
course the older forms of speculation still persisted, 
especially gambling on the appreciation or deprecia- 
tion of currencies. The enormous war loans that 
were issued on all sides were also to some extent the 
object of speculation. Intense speculation, for 
instance, followed the downfall of the Tsarist regime, 
when Russian loans might be worth anything or 
nothing. All the same, speculation in foreign 
exchanges and in government stocks was insignificant 
compared to the speculation done in shares and in 
raw materials. 

This time governments took measures from the 
outset against speculation. This was not done for 
fear of the speculators raking in too much money, but 


for fear of the effects of bear operations. If prices 
fell on the exchanges, it would be an open demonstra- 
tion of pessimism which might adversely affect the 
national morale. 

In July 1914 the markets reacted in the usual way 
to the threat of war by an all-round fall in prices. 
The extent of the fall varied with different stocks and 
in a strangely illogical manner. For instance, 
Russian and Hungarian loans fell less on the London 
Stock Exchange than English Government securities. 
The latter fell with unheard of rapidity, losing 10% 
in a few days. English railway stock fell 15% and 
even then no one was keen to buy. Stranger still, 
American steel works and Spanish copper mines 
that were shortly to be making enormous war profits 
fell 15 to 20% below their normal peace-time 

To prevent a wholesale collapse of prices there 
was nothing for it but to close the exchanges. At 
the end of July, in countries far from the centre of 
disturbance as well as in those involved, the exchanges 
were closed. The last to close its doors was the 
London Stock Exchange, which shut on August ist. 
In this way it was intended to suspend all dealings. 
In reality, however, this was not achieved, for 
speculation was continued outside the official ex- 
changes. In spite of great technical difficulties, 
unofficial markets were formed where prices fluctuated 
more violently than ever. To cut short this wild 
speculation, the authorities were compelled once 
more to open the exchanges, though they kept them 
under control and imposed certain conditions. 



Buying or selling for forward delivery was pro- 
hibited. Whoever bought bonds, shares or com- 
modities, was obliged to accept delivery and pay 

Restrictions, however, were not very effective. 
Everywhere speculators found means of getting round 
them. Besides, the controlling authorities became 
gradually more lax. Bear operations, such as had 
been carried out in former wars, were indeed prac- 
tically stopped. But with the growing profits of war 
industries, the rise of dividends and the distribution 
of bonus shares, buying for a rise was the basis of 
feverish speculation. In England the shipping boom 
sent prices rocketing. In Germany many shares rose 
to double what they had been before the war. Even 
in France, where the most important industrial 
centre was occupied by the enemy, shares rose 30 
to 50%. 

But it was on the exchanges of neutral countries, 
particularly in America, that war speculation reached 
its climax. It was not till December 1914 that the 
New York Stock Exchange was re-opened. By that 
time the first alarm created by the outbreak of war 
had pretty well subsided. All the same, markets 
were at first weak, and in spite of ofl&cial intervention 
to support them, prices further receded. Even the 
shrewdest speculators refused to beheve that the war 
could be a source of American prosperity. Shares of 
the United States Steel Corporation fell a further 
20%. But in a few days things began to change. 
Business opinion on the subject of American war 
supplies began to take shape. The government was 



preventing good business? Well, the government 
would have to give way ! 

At the beginning of 1915, when the first contract 
was signed between Morgan and the British Govern- 
ment, a general rise in prices took place ; and during 
the course of that year shares doubled in value. 
Many shares even reached three or four times their 
pre-war values. In 1916 Wall Street was the scene 
of the most intense speculation. The shares of those 
companies receiving the largest orders for war supplies 
soared to preposterous heights. Those of Bethlehem 
Steel, which had been 25 dollars before the war, rose 
to 600 and, finally, to 700. Shares of the American 
Hide and Leather Co. jumped from 3 to 20 dollars. 
Those of the Corn Products Refining Co. from 8 to 
50 dollars. 

The profits derived from this speculation were 
hardly less than those derived from war trade itself. 
The machinery of capitalism was working to per- 
fection. There was no need to trade in shells or 
haversacks; one could make almost as much by 
buying up at just the right moment a block of shares 
in the firms that made them. 

Among the speculators of Wall Street, one name 
stands out : that of Jesse L. Livermore. Already, 
before the war, he had done some brilliant deals on 
the exchange and had built up a considerable fortune. 
But the depression during the early days of the war 
had ruined him as it had so many others. At the 
beginning of 1915 he was insolvent; he was, in fact, 
4 million dollars in debt. All the same, his credit 
was stm good, and as soon as war orders started to 


274 the profits OF WAR 

come in he bought United States Steels and Bethlehem 
Steels. In 1916 he was already liable for tax on an 
income of over a million dollars a year. By 1917 he 
had paid off all his debts, and when the United States 
entered the war he was in a position to take up a 
million dollars of war loan. 

Wall Street fears Peace 

Up to America’s entry in the war, speculation in 
Wall Street concentrated almost exclusively on the 
question of war supplies. Accordingly the duration 
of the war was a matter of vital interest to everybody. 
Every speculator had his ear to the ground so as to 
be the first to hear any premonitory vibrations of the 
bells of peace and be able to seU out in time. For it 
was well understood that the shares of the war 
industries could not maintain their levels when the 
war was over. Towards the end of 1915, when 
Colonel House was sent over to Europe to sound the 
belligerents on the subject of peace, anxious looks 
were exchanged in Wall Street and prices fell. But 
this time they were spared the bitter cup of 
peace, and before long prices had risen higher 
than ever. 

During the last weeks of 1916 the danger of peace 
was once more giving rise to grave concern, in fact, 
anxiety in Wall Street was acute. Ordinary business 
men steadfastly refused to believe in the possibility 
of peace. The war, looked at from a distance of 
3000 miles, was really too beautiful to end so soon. 
But speculators of less enthusiastic nature and more 



objective vision were quick to grasp the situation. 
One of the shrewdest and most far-seeing was the 
New York financier, Bernard Baruch, a personal 
friend of President Wilson. 

Bernard Baruch was one of those typical American 
financiers who pride themselves on having made a 
fortune by speculating. Before the war he had already 
made several million dollars. He held, incidentally, 
a large block of shares in the Atolia Mining Co. 
which was engaged in the production of tungsten, an 
ingredient of tungsten steel. During the war the 
price of this metal rose to ten times its pre-war 
level, and in the year 1916 alone, Baruch drew 

600.000 dollars in dividends, which even in America 
was no mean profit from war trade. But on the 
Exchange, sums of that order could be made in a 
matter of days. 

Like most other big speculators, Baruch had been 
buying shares in war industries for forward delivery 
in the expectation that their prices would rise. On 
December iith, 1916, he made a further purchase of 
some thousand shares in the United States Steel 
Corporation. The very next day the German 
Chancellor, Bethmann-Hollweg, announced that he 
had transmitted proposals for peace negotiations to 
the Allies and had also informed neutral powers. 
The same afternoon Baruch sold all the shares he 
had just bought. He even resigned himself to losing 

20.000 dollars on the deal, for peace threatened, and 
peace would mean a heavy drop in prices. He now 
reversed his former tactics and started bear opera- 


Meanwhile the Allies one after another turned 
down Bethmann-Hollweg’s offer. On December 
igth Lloyd George made a speech in reply which 
seemed definitely to settle the matter. There would 
be no peace negotiations. Prices rose on the Stock 
Exchange. While Lloyd George’s speech was being 
cabled to America, Bernard Baruch stood before the 
ticker following every word. But whereas others 
bought, he continued selling. He sold as many as 
43,000 shares of United States Steel. He was in fact 
engaged in bear operations to the tune of 5 million 
dollars, and prices went up minute by minute. It 
was remarkable that so careful a man should be 
playing such a risky game. 

Two days later, sensational news was circulating in 
Wall Street. The government had just published a 
note that had been addressed to all belligerent 
countries in which President Wilson offered to act 
as a mediator. Reaction on the Exchange was 
immediate, prices falling sharply. Shares in war 
industries fell 10 to 20%. This break in prices was 
just what Baruch needed. He could now buy with 
a comfortable profit, and he made nearly half a 
million dollars on the deal.^ 

Dealings of such dimensions could not fail to attract 
attention even in America, and Baruch was suspected 
of having received prior information of the step 
President Wilson was taking. The press raised an 
outcry and a commission of enquiry was set up to 
investigate the matter. The latter, however, did not 
succeed in shedding light on Baruch’s transactions. 

^ Robert Irving Warshow, Wall Street, French ed. Paris 1931. 


Baruch himself naturally maintained that he had 
never received the least hint from Wilson of the 
proposed note ; that he knew nothing more than was 
known to the public; that he simply believed in 
peace, and interpreted Lloyd George’s speech as an 
indication that it was coming. 

However that may be, it is certain that Baruch 
had based his speculation on a political error, for the 
peace tentatives failed even after Wilson’s note. 
This serves to show the difference between his 
speculative ability and Holstein’s. In contrast to 
the latter, Baruch had a keen flair for judging the 
effect of political information on the stock market 
quite apart from its intrinsic political significance. 

A few months after America’s entry into the war, 
Baruch left the scene of his recent triumphs. President 
Wilson called him to Washington, where he was 
first a member, later chairman of the War Industries 
Board, organizing supplies for the army and navy. 
In this position (though he did not actually fix prices 
himself) his decisions were to exert a considerable 
influence on the degree of war profits made by the 
industries engaged. 

As was proper, before taking up his official duties, 
he sold his seat on the New York Stock Exchange. 
Moreover, he invested the bulk of his fortune in 
American war loans and handed over to charities 
the dividends accruing from the tungsten mines. 
Whereas in 1916 his income had been 2,300,000 
dollars, in 1917 it was only 600,000, while in 1918 
and 1919 it dropped to nothing. Stranger still in 
the moral evolution of this hard-headed busiuess 


rnan was the fact that he now became an ardent 
pacifist denouncing with vehemence the profits of 

War Boom and Post-War Crash 

Other speculators, however, went on with then- 
speculations after America entered the war, buying 
and selling with the same zest as before. But con- 
ditions were no longer so favourable as they had been. 
The machinery set up to bring war industries under 
some control, was, it is true, not rigorous enough to 
put a stop to war profits. But it did tend to reduce 
them, particularly in the case of the smaller firms. 
The ex-speculator, Baruch, was one of the first to 
apply the brake to industrial prosperity and even to 
that of the Stock Exchange. Another factor which 
now came into play was that, with America at war, 
speculators took far more notice of the progress of 
military operations. They gambled not only on the 
question of peace or war, but on the effect of every 
success or reverse at the front. 

The most serious crash which occurred on Wall 
Street during the war years was strangely enough 
occasioned by an event that was far from the seat of 
American military operations, this being the Italian 
defeat of Caporetto in October 1917. This reverse 
was serious enough for the Allies, but in no way 
decisive; yet, when the news of it arrived in Wall 
Street, prices fell 20 or 30%. The collapse of the 
Russian front was another cause of depression. 
Bear operations prevailed, and towards the end of 



1917 and at the beginning of 1918 the prices of 
American Industrials fell to almost the level at which 
they had been three years before, that is to say before 
war trade began in earnest. Many of the big specu- 
lators, and a lot of the smaller ones who followed 
them, lost in these months of depression all that they 
had previously made. 

Then, as the Allies’ position gradually improved, 
from the spring of 1918, a new wave of optimism set 
in and prices rose. This rise was not so sharp as had 
been the previous one, but things got steadily brighter 
and brighter as good news continued to cross the 
Atlantic. In the growing excitement speculators 
apparently forgot that successes would in the end 
mean peace. They forgot too that war profits were 
now considerably reduced both on account of govern- 
ment control and the general rise in wages. 

It was only when the Armistice was actually signed 
and, as a result, war production arrested that prices 
on Wall Street began to weaken. But this moment 
of reflection did not last long. Everyone was in good 
spirits and it was impossible to believe that such good 
times were coming to an end. In 1919, Stock 
Exchange prices soared once more, reaching heights 
that had not been reached even in the palmiest days 
of war supplies. In the end came the inevitable crash. 
Stock Exchange prices and the prices of raw materials 
collapsed, bringing down with them in their fall 
hundreds of thousands of economic existences. 

Very few were the war speculators who succeeded 
in withdrawing in time. One of them was the able 
Jesse L. Livermore, who at the last moment succeeded 

28 o the profits of WAR 

in selling short 40,000 shares, making millions of 
dollars on the deal. Others, such as the unshakable 
optimist, William C. Durant, the much admired 
financier of the motor industry, saw their fortunes 
disappear. It seems to be generally true for war 
speculation as for peace speculation; riches quickly 
accumulated are quickly dissipated. 

This instinct for speculation is deeply engraved in 
human nature, and it must not be thought that, 
because in the last war speculators bit oflF more than 
they could chew, they would in the next be any more 
prudent. Nor must it be expected that speculation 
will gradually be eliminated by a change in moral 
outlook as has been the case with the soldier’s profits 
from war. 

In peace-time the Exchanges do not like war. 
Prices weaken at the least hint of danger. For 
instance, in July 1934, when, following the assassina- 
tion of Dollfuss, Italian troops were moved up to the 
Austrian frontier, prices on Wall Street fell sharply. 
Nervousness was such that even armament shares 
moved in sympathy with the general trend. Never- 
theless it would be a mistake to think that professional 
speculators do not believe in war prosperity. All we 
may conclude is that the usual rhythm of stock market 
prices in modem wars — ^prehminary weakening, war- 
time soarmg, post-war crash — ^will be duly followed 
in the struggles of the future. That is, unless specula- 
tion is completely suppressed in neutral countries as 
well as in those at war. But for the moment it hardly 
looks as if things would go that far. 


Three Arguments 

There is no one to-day in any country in the world 
who is ready to come forward openly to defend the 
profits of war. Profits of this sort are condemned 
on principle by public opinion and by every govern- 
ment alike. Underlying this condemnation are three 
fundamentally different reasons. 

Firstly, there is the pacifist view. It is hoped that 
in suppressing the profits of war, war itself would be 
suppressed, or at any rate its duration curtailed. 
If no one profits from a war, no one will want it, and 
no one will have it — that is the simple logic of the 
pacifist’s view. As a logical generalization, this is 
certainly contestable, but, as we have seen, a great 
deal of evidence could be mustered in support of it. 

Secondly, there is what might be called the sociologi- 
cal view. Quite apart from whether wars are avoid- 
able or not, it is incompatible with the modern notion 
of a citizen’s duty that some should profit by the 
nation’s need. When one man is called upon to risk 
his life, why should his neighbour make a profit 
instead of a sacrifice? The justice of this view is so 
incontestable that it finds support, at least in prin- 
ciple, even in the most anti-pacifist quarters. More- 
over, it is realized that this moral argument has its 




practical side. For it has often been proved that the 
co-existence side by side of war profits and war 
sacrifices does not tend to strengthen the morale 
of troops or that of the civil population. 

Thirdly, there is the fiscal view. The State, if it 
is in need of money during a war, must take it where 
it can find it. This has in the past played a con- 
siderable and often a decisive part in the effective 
restriction of war profits. As a rule it is not war 
profits which are the first to be tapped, but if the 
war lasts long enough, the government is bound 
sooner or later to have recourse to this source of 
money, whether it is by means of forced loans as in 
the time of Napoleon or by taking excess profits as 
in the last war. 

Moreover, in dealing with the eternal question 
whether the arming and provisioning of troops 
should be undertaken by the nation or by private 
enterprise, governments have often acted from purely 
fiscal motives rather than from military or economic. 
When armament mahers, contractors or financiers 
go too far, governments take the offensive and impose 
restrictions. But, on the other hand, it has often 
been precisely the financial difficulties of a govern- 
ment which have forced it to shut its eyes to war 
profits of outrageous proportions. 

The Movement for International Control of Arms 

The struggle waged by pacifism against war profits 
is directed almost exclusively against the arms in- 
dustry. As we have seen, it is more than doubtful 


whether the armament firms have an interest in the 
actual outbreak of war. But there can be no doubt 
whatever that the fear of war is necessary to their 
trade, and that they are ready to fight tooth and nail 
any organization or any movement which could bring 
about a really stable peace. It need hardly be added 
that they are hostile to any general scheme of dis- 
armament or control of armaments. 

President Wilson and those who collaborated with 
him to set up the League of Nations were well aware 
of this, and expressed their opinions very definitely 
in the famous Article VIII on the first page of the 
Treaty of Versailles: 

“The members of the League agree that the 
manufacture by private enterprise of murdtions 
and implements of war is open to grave objections. 
The Council shall advise how the evil effects 
attendant upon such manufacture can be prevented, 
due regard being had to the necessities of those 
Members of the League which are not able to 
manufacture the munitions and implements of 
war necessary for their safety.” 

For years, efforts at Geneva have been directed to 
this end. Efforts have also been made to frustrate 
these efforts. In 1925 a conference considered the 
question of regulating the international traffic in 
arms. Certain proposals were made for a ban on the 
export of arms to certain prohibited zones and on 
their, sale to illegal customers, i.e. revolutionary 
parties or rebel colonies. It would be thought that 
it was in the interests of all the governments of the 


Member States to agree to these proposals, but one 
or two exporting states refused to ratify them and 
accordingly they had to be dropped. Efforts to 
regulate manufacture were no more successful. A 
special commission to which the matter was referred 
produced a draft convention. It never became more 
than a draft, though the proposals were of the 

The Disarmament Conference of 1932 was in- 
tended to result in a more comprehensive control 
of both the industry and the trade in arms. This 
time the eyes of all the world were turned on 
Geneva. Really definite results were expected. But, 
as usual, commissions and subcommissions were set 
up to consider carefully each special question. 
And the further into detail they went, the more 
entangled they became in political and technical 

The suggestion of some of the more radical delegates 
that the whole arms industry should be nationalized 
was rejected at the outset on the pretext that it would 
discriminate unfairly against those small States which 
possessed no factories of their own. In pressing the 
justice of this objection, the great exporting and 
trading countries showed an almost greater concern 
than those which were supposed to need the arms. 

Even the much more modest proposal for the 
licensing and control of private manufacture was 
confronted by insurmoimtable obstacles. The in- 
ternational control envisaged by France and America 
was objected to by England. Countries like China 
maintained that only the most rigorous international 


control could be eflfective; but Japan would not 
entertain the idea of her arms being brought under 
the control of any international body whatever. 
As a result of Japan’s attitude, Russia too made 
reservations. Three years passed in preliminary 
discussions, and the conference was never unanimous 
except when voting for adjournments or the setting 
up of new technical commissions. 

Up to now, the international arms trade has 
succeeded with consummate skill in averting every 
danger threatened from Geneva. The declaration 
of war which the League of Nations made on the 
arms merchants seventeen years ago is still a dead 
letter to-day. 

The Movement for National Control of Arms 

It has not been only in the International field that 
the struggle against the arms industry failed to achieve 
any definite results. Within each country it has 
failed too. Up to 1935 nationahzation of the in- 
dustry has nowhere been accomplished.^ Wherever 
the question has been seriously raised, the industry 
has launched a prompt and effective counter-attack. 

The argument put forward by the champions of 
private enterprise rims on these lines: Supposing 
the armament works are nationalized to-day, the 
production of raw materials will be taken over to- 
morrow, for they are necessary to the manufacture 

1 In France, however, after the electoral victory of the Front Popuhire, 
the Blum-Daladier government has announced that legislation would 
be introduced to nationalize the manufacture of war material. 


of arms. The day after to-morrow, it will be the 
turn of the textile industry and the victualling trade, 
for they too are essential parts of war economy. It 
will never be possible to draw a line. The national- 
ization of the arms business would be only the first 
step in the nationalization of all industry. Whatever 
they may profess, its advocates are pleading the 
cause of communism. Thanks to this specious 
reasoning, which could equally will be applied to 
all government measures whatsoever, private enter- 
prise has so far won the day. 

One objection to private manufacture has here 
and there been given serious attention. It consists 
in pointing out the danger to the country, particularly 
in war-time, which arises from the immunity of the 
arms industry from all governmental control. In 
certain cases, selling arms to foreigners is equivalent 
to arming the enemy. For it can never be known 
beforehand just how nations will group themselves 
in a future conflict, and the countries to which arms 
have been sold in peace-time may next year be using 
them against the country of their origin. 

But the same kind of sophistry can be used to rebut 
this argument. Again it is pointed out that a line 
can never be drawn. Every export tends to strengthen 
the country importing it. Every machine, every 
nail, every pound of cotton — all could be regarded 
as war material in the last resort. Thus the publicity 
agents of the arms trade are able to show, with 
apparently faultless logic, that if the export of 
arms is stopped all international trade must cease 
with it. 


Another argument put forward by the trade is one 
that was already made use of by Alfred Krupp sixty 
years ago. In more recent times it has been a 
favourite argument with American manufacturers. 
A “national” arms industry cannot flourish if de- 
prived of its exports. The classic discussion on this 
point was in 1928 when Theodore Burton, head of 
the American delegation to the League of Nations 
Conference on the control of the arms trade, suggested 
in Washington that an embargo should be placed on 
all export of arms to belligerents. 

The expert to whom the matter was referred by 
the American Government answered that if foreign 
governments knew that exports would be suspended 
in war-time, they would refrain from buying any 
arms from America even in peace-time. And if 
manufacturers could not export freely in peace-time, 
their productive power would not be sufficient for 
American needs in times of danger. It was therefore 
necessary for national defence that American manu- 
facturers of arms and munitions should be free to 
export their products to all the world. And that 
is what they have done, providing with arms and 
munitions even those countries which might one day 
threaten the United States. 

Nevertheless, in spite of the efficacy of these argu- 
ments, public opinion is distinctly sensitive, and when 
the unscrupulousness of the arms merchants becomes 
too obvious an outcry is raised. Thus in 1934 the 
Arms Commission of the Senate provoked a move- 
ment in favour of strict control of the industry. The 
revelations made in Washington had, moreover, 



reactions abroad. In Canada, Mackenzie King de- 
manded a similar enquiry for the whole British 
Empire. A Royal Commission has, of course, been 
set up in England, but it does not seem very likely 
that its deliberations will have any definite results. 

In the spring of 1935, Swedish public opinion was 
aroused by the revelations of Sandler, the foreign 
minister. The latter was able to show that a large 
part of the Swedish arms industry was in the hands 
of German groups. A third of the shares of Bofors, 
the most important Swedish works, were (through 
an intermediate company) ultimately owned by 
Krupp’s. In accordance with a special law that was 
passed, these shares had to be sold to Swedish capital- 
ists, and steps were taken to make this sort of thing 
impossible. But when the government wanted to go 
further and bring the industry under government 
control, vigorous opposition was immediately en- 
countered. The tussle resulted in a somewhat mild 
compromise. A licensing system was to be established 
in two and a half years. Until then the trade could 
carry on as it liked. The remarkable thing is that 
even in a case like this, where it is the government 
itself which leads the attack, the armament industry 
is on the whole victorious. 

Government Declarations 

The non-pacifist movement against war profits 
seems to have more chance of success. The principle 
according to which no one has the right to make 
money out of war is widely regarded, especially 


amongst ex-servicemen, as fundamental, and those 
who think otherwise refrain from any overt expression 
of their point of view. One after another the govern- 
ments of the great democratic countries have in 
recent years formally declared their adherence to 
the view that in future war profits ought not to exist. 

These declarations have come at a time when the 
military expenses of every country were being con- 
siderably increased, and when all branches of war 
industry were making substantial profits. This is 
a paradoxical situation for which as yet no solution 
is in sight. Nevertheless, it is an important fact that 
leading statesmen have made larger and more 
definite promises for the future than have ever been 
given hitherto. 

In France in December 1934 Flandin told the 
Chamber of Deputies that “there could be no question 
of any profit whatsoever in war-time for the industries 
which were working for national defence.” This 
declaration was warmly applauded by the assembly. 
Moreover, the French Government held the view 
that it would be dangerous to make a distinction 
between armament industries and ‘pacific’ industries, 
for in time of war many of the latter would rapidly 
be converted to war production. “No one could 
tolerate,” continued Flandin, “that some should 
give their lives in the conflict while others retained 
their money. For its part, the government considers 
that in war-time there should be no profits for any of 
the industries mobilized.” 

Soon afterwards an attempt was made to put this 
principle into concrete form and incorporate it in 




the laws of the coiintry. Fernand Laurent, a deputy 
belonging to the right wing of the governmental 
parties, laid a measure before the Chamber pro- 
hibiting in war-time all industrial or commercial 
profits which could be attributed to the war. During 
hostilities, profits were to be restricted to the average 
earned during the five preceding years, all sums in 
excess to be collected by the government and used to 
repair the destruction caused by war. Another 
parliamentary attack on war profits was launched in 
June 1935, during the debate on the mihtary estimates. 
Neither of these attempts succeeded, however, and, 
up to the present, no definite measures to abolish 
future war profits have been actually introduced. 

As regards the last war, however, really drastic 
action has actually been taken, though not until 
1933. In the spring of that year a retrospective 
finance measure was passed with the budget, whose 
aim was to strike at the war profits of 1914-1918. 
This drastic measure consisted not of the imposition 
of a further excess-profits duty, but of the sequestra- 
tion of all war profits in excess of a certain percentage. 
Maximum profits were fixed for manufacturers at 
10%, and for middlemen at 2%, of the value of goods 
supplied. All sums in excess were to be handed over 
to the treasury. It must not be forgotten, however, 
that the franc has lost four-fifths of its pre-war value, 
so that the money collected under this law will be 
much less than if it had been collected at the time. 

To secure the necessary information for the law to 
be put into effect, a commission [Jury national des 
marchSs de guerre) was set up to examine aU the more 


important deliveries of war supplies during the war. 
The results of their deliberations have not been 
published, but it would seem that the material they 
have collected will serve as the basis for legislation 
on the profits of future wars. 

For the last year or two in France a good deal of 
discussion has centred on the question of restricting 
even in peace-time the profits of the armament firms. 
A first step in this direction was taken in July 1935 
when Laval was introducing his emergency measures, 
dkrets-loi, in the attempt to put the national finances 
on to a better footing. Amongst the many measures 
included in the dkrets-loi was a special 20% tax on 
all profits realized by the firms engaged on work for 
national defence. 

In May 1935 Baldwin formally declared in the 
House of Commons that the government was resolutely 
determined that in the projected expansion of the 
air force there would be no scope given for profiteering. 
It is true that this declaration did not cause any 
sensation on the Stock Exchange where aviation 
shares, already very high, continued to rise. But it 
can hardly be doubted that Baldwin, who during the 
last war surrendered his own war profits to the 
treasury, would be ready to impose a limit on those 
of others. 

In Italy, where even in peace-time a considerable 
part of the arms industry is under the financial and 
political control of the government, the question of 
war profits has not been publicly examined. On the 
mobilization against Abyssinia, however, in summer 
of 1935 Mussolini felt obliged to impose restriction, 


though his measures against war profits were more 
apparent than real. No company was to pay dividends 
of more than 6% unless it had already done so in the 
course of the preceding years. Any surplus was to 
be invested in government stock where it was to 
remain blocked for three years. Thus, war profits 
were not really limited at all, though companies 
were temporarily deprived of the liberty of disposing 
of them as they Uked. The object obviously was 
not so much to restrict war profits as to prevent 
the orgy of speculation which occurred in Italy 
during the last war. 

The Campaign in America 

It is however in America that the campaign against 
war profits has been most serious. The strength of 
this offensive is all the more remarkable in that only 
a few years ago the least movement in this direction 
encountered the most energetic resistance from the 

Under Hoover the atmosphere of Washington began 
to undergo a change. Hoover had the temerity 
publicly to stigmatize the destructive and under- 
ground work of the American arms manufacturers. 
But though he was weU intentioned, he did not make 
any great impression on the average American. 
According to him, the huge sums spent on armaments 
were among the principal causes of the economic 
crisis, a thesis that was demonstrably unsound. He 
did not go so far as to attempt to put into practice 
the excellent sentiments he expressed. He success- 


fully unveiled the machinations of the armament 
makers and their agents, but did nothing to put an 
end to them. A commission engaged in studying 
the political problems of war suggested among other 
measures the imposition of a 95% tax on war profits, 
but this was never given serious consideration. In 
this, as in many other respects, Hoover’s bark was 
worse than his bite. 

It was only when Roosevelt came into power that 
the campaign against war profits emerged from its 
platonic phase. From the outset Roosevelt made a 
sharp distinction between the question of American 
rearmament and that of war profits. The govern- 
ment would authorize armaments as it thought fit. 
But those who provided them were no longer to fill 
their pockets as they had done hitherto. Nor were 
they to cormt on any supplementary profits of any 
kind in war-time. The same attitude was taken up 
concerning the export of arms, and the financing of 
the arms trade, and other forms of war profits. The 
watchword was given: “Take the profit out of war,” 
and a very effective watchword it was. 

To break with the ideas and traditions of the past, 
it was necessary that the public should be enlightened 
on the profits that had been made from the last war 
and the manoeuvres that were on foot to secure 
further profits of the same kind. It was not a question 
of bringing to light some particular personal scandal 
— ^in America people are accustomed to revelations 
of that sort — ^but of making the public aware of the 
normal operations of war profiteers over the previous 
twenty years. 



The Arms Commission of the Senate, set up in 
1934, got to work in the most ruthless manner, show- 
ing no fear or favour, and the scope of its investiga- 
tions went further than that of any previous enquiry. 
No names were great enough, no organizations 
powerful enough to intimidate the members of the 
commission. Nor did they confine themselves to an 
examination of armament firms, properly speaking, 
but went into the affairs of all kinds of fir ms dealing 
in war supplies. At every turn huge profits were 
revealed, secret agreements, propaganda devoid of 
every scruple, and the most revolting attempts at 

The Senate Commission did not even confine itself 
to enquiry. To strike while the iron was hot it 
promptly drafted legislation imposing a 100% tax 
on war profits. Congress voted the measure almost 
imanimously. But before it could pass into law 
Roosevelt intervened and summoned a conference 
of experts to the White House to go into the whole 
question in all its aspects and draw up the necessary 

This action on the part of the President did not 
fail to give rise to adverse criticism. It was regarded 
by many as a flank attack inspired by the armament 
interests. Nevertheless the names of the experts 
chosen was evidence of the serious intentions of the 
government. The prehminary work was confided 
to a man whose competence on this subject could 
not be questioned. This was Bernard Baruch, who 
as we have seen had gained experience in both 
camps, having been both a war profiteer and an 


official controlling war profits. Baruch had already, 
just after the war, worked out a scheme for industrial 
mobilization. The plan included a licensing system 
for armament firms, a scale of maximum prices (this 
being preferred to fixed prices), and a considerable 
tax on all excess profits. It will be seen that under 
this plan war profits are not definitely excluded. 

The government, however, wanted the subject to 
be treated more from a political angle. Professor 
Charles Warren was called in, a man who had already 
had a say in Roosevelt’s monetary policy. Baruch 
and Warren elaborated a plan with the object of 
preventing America’s being drawn into any war as 
a result of her having an economic interest in that 
war. To this end it was thought necessary to restrict 
even the trade of a neutral country. The supply of 
arms or munitions to any belligerent was to be strictly 
prohibited, no loans were to be made to a belli- 
gerent, nor were ships to be placed at the latter’s 
disposal. Moreover American ships entering the 
zone of hostilities were to enjoy no protection whatever 
from their government, and passports would not be 
given to American citizens to enable them to enter 
the countries at war. 

This idea was to throw a cordon round any 
dangerous area of the world, or, to change the 
metaphor, to put in quarantine any infected region. 
War areas were to be closed to American citizens, 
American ships, American arms, and American 
money. The growing tension between Italy and 
Abyssinia durmg the summer of 1935 accelerated the 
passage of this measure, but up to the outbreak of 



hostilities, the armament firms were able to continue 
unmolested their trade with Italy, and when hostilities 
began there was still no law to forbid the supply of 
raw materials. Copper, steel, cotton, petrol, etc., 
were shipped to Italy in quantities far exceeding 
normal requirements. Exhortations from the govern- 
ment asking exporters voluntarily to stop all war 
shipments were without avail. 

In his message to Congress in January 1936, 
Roosevelt attempted a further step. To assure 
American neutrality it was not suflacient to put a ban 
on the export of arms and munitions; it should be 
extended to all American goods which could help 
belligerents to continue the war. Following this 
declaration of principle, legislation was drafted, 
giving the President discretionary powers to place 
embargoes on war materials, such as oil, cotton and 
iron, if exports exceeded normal trade. 

This move was at first favourably received both by 
the public and by Congress. The Arms Commission 
was then examining Morgan’s war dealings and 
public opinion was aroused. There seemed no doubt 
that the proposed act would go through quickly. 
But then a well-directed counter-attack was launched 
by the interests affected. Certain jurists opposed the 
measure, maintaining that it would involve such 
technical difiiculties that it would prove inapplicable. 
Next, trouble arose in the Arms Commission. 
Senator Nye had made certain accusations against 
President Wilson which democrats regarded as an 
election manoeuvre, and several influential members 
of the party refused to vote the money required for 


the continuation of the enquiry. Finally, discussions 
in Geneva on the subject of an oil embargo played 
into the hands of those hostile to the League of 
Nations. In the space of a few weeks American 
opinion had shifted. Legislation was adjourned 
indefinitely. Congress confined itself to the pro- 
longation to May 1937 of the law already in existence. 
However, the restrictions thus kept in force are 
considerable, particularly the ban on credits to belli- 
gerents. They are in fact such that American business 
in any future European war would be very seriously 

It must not be forgotten that this campaign against 
war profits in America has been fought at a time 
when the country was still suffering severely from 
trade depression, the number of unemployed being 
some ten million. Under these conditions, to re- 
pudiate profits from war, even if it is a war fought 
by others, is a courageous act which Europe should 
admire and respect. 

The New Conception 

In a great part of the world, ideas, as we have seen, 
are changing. Governments, parhaments, and the 
public are agreed that in another war there must be 
no orgy of profits as in the last. The new idea which 
is gaining ground is that the State should determine 
the remuneration which the citizen receives for his 
war-time services whatever those services may be. 
Mobilization should include the whole economic 
organization of the country. The manufacturer 



supplying goods to the nation in its hour of need 
should have no more right to bargain than the 
soldier. Prices should be fixed for him as the soldier’s 
pay is fixed. If it subsequently appears that prices 
were fixed at too high a level, so that profits have 
exceeded the appointed figure, the excess should be 
returned to the treasury as being the latter’s property. 
A 100% tax on excess profits should hardly be 
regarded as a tax at all, but rather as a refimdment. 

This, as we have said, is the new conception. But 
we should be courting disillusionment if we expected 
it to be put into practice. Even if governments have 
more or less proclaimed their adherence to it, we 
must, nevertheless, be highly sceptical of their ability 
to enforce it. The whole capitaHst structure is based 
on the desire for gain, and it would not be easy even 
under the stimulus of war to replace that motive by 
the patriotic sense of duty. 

It is interesting to observe that soldiers are particu- 
larly sceptical in this matter. The generals who 
expect from theh men the most unquestioning loyalty, 
and a readiness for sacrifice that knows no limits, 
abandon this simple and straightforward outlook as 
soon as they have to do with business men. As has 
been shown once more during recent discussions in 
the United States, they wonder anxiously whether 
contractors making a profit of 3% would work as 
conscientiously as if they were earning 6%. In this 
respect the soldier is less advanced in outlook than the 
politician. Thus military expediency which gave 
such scope for profiteering during the last war may 
yet help to fiU many a pocket in the next. 


The determination of who is and who is not a war 
profiteer is another question that raises considerable 
difficulties. It has already been accepted that no 
line can be drawn between arms and other war 
supplies. But can a line be drawn even here? Or 
must the whole national economy be regarded as a 
single entity, every part of which is involved? Cer- 
tainly in war-time many branches of industry that 
would appear to have no relation to the war have none 
the less their share of war prosperity. Ought then all 
profits above normal to be regarded as war profits? 

To judge from their declarations the French and 
English Governments are not prepared to go so far. 
In America, on the other hand, the view is gaining 
ground that whoso profits during a war profits from it. 

In America it has even been suggested that in war- 
time an upper limit should be fixed for all incomes. 
This idea is not altogether new. In 1800, after 
Ouvrard’s arrest, Bonaparte said to Bourienne, his 
secretary: “In a period of revolution, no one should 
possess more than three millions, and that is still too 
much.” In 1935 the American, John J. Flynn, urged 
that during war individual incomes should not exceed 
10,000 dollars, but we may well doubt whether this 
idea will come any nearer to realization than that of 
the young Napoleon. 

The Evolution of War Profits 

But if many of the suggestions put forward for the 
suppression of war profits end up in the pigeon-holes 
of official departments, we should none the less be 



making a great mistake if we failed to take seriously 
the efforts that have been made in this direction. 
For these efforts fall into line with a general tendency 
which may be traced through the centuries. As we 
have seen, the forms, the proportions and the political 
and economic importance of war profits have been 
continually undergoing changes. As with all historical 
developments there have been moments of relapse; 
but the main tendency is always the same. 

For thousands of years military profits were far the 
most important. The riches reaped by war went 
first of all to the general and in lesser degree to the 
officers under him, and even sometimes to the common 
soldier. In fact, it was often the harvest these could 
hope for that provided the real motive for a war. 
This form of profit, at once the most primitive and 
the most brutal, has to-day almost disappeared from 
view. Except for the relatively insignificant amounts 
distributed in some coimtries in the form of gratuities, 
prize money, etc., military profits may be said to 
have practically ceased to exist. A general to-day 
whose aim was to make a personal fortune out of a 
campaign would earn the contempt of his brother 
ofiicers, of his troops, and of the entire nation. Yet 
in ancient times and in the Middle Ages this was 
pretty much the rule, and down to the eighteenth 
century it provoked neither astonishment nor in- 

With the disappearance of this, the simplest and 
most direct form of war profits, the latter have so to 
speak taken refuge in finance, industry and trade. 
The enormous sums of money needed for a modem 


war have, however, brought it about that the State 
itself has entered the financial field, and, as we have 
seen, become to a considerable extent its own financier. 
From the middle of the nineteenth century, war 
profits began to evacuate the field of finance, to form 
a new line in the armament works and munition 
factories. Manufacturers of rifles and guns came 
forward into the front rank of great capitalists. As 
war material came to play a greater and greater part 
in modem warfare, a large number of other businesses 
became involved that were less specialized in war 
supplies, and between 1914 and 1918 war profits 
extended to a very large field of trade and industry, 
and on the whole the more “pacific” trades and 
industries did better out of the war than the armament 
firms. Then again, neutrals made more than belli- 

It thus appears that the centre of gravity, as it 
were, of war profits has been on the whole, if not 
altogether regularly, shifting away from the actual 
theatre of military operations. The armament firms are 
now menaced, and it is doubtful whether they will 
ever see again the profits they have enjoyed in the 
past. Looking towards the future, it may fairly 
safely be predicted that the further one gets from 
wars, the more profitable they will be. It is not one’s 
own wars that will bring in the profits, but the wars 
of others. Armaments will realize less war profits 
than the most innocent of products. Evolution is at 
work to make war profits more and more indirect, 
so that Julius Caesar’s place is now to be taken by 
some magnate of the canning trade. 


Allenby, 50 
Angenard, 17 
Anne, Queen, 30 - 3 ^, 33 
Ansaldo & Cia, 158, 159, 177 
Armstrong’s, 118, 132, 143, 160, 
161, 177-181 
Atahnalpa, 14, 15 

Baldwin, Stanley, 291 
Ballin, Albert, 228, 229 
Bardi, Banking house of, 61 
Barras, Paul de, 210 
Baruch, Bernard, 275-278, 294, 295 
Beardmore’s, 160 
Beaumarchais, 203 
Bernadotte, 37, 38 
Bertier, 37 

Bethlehem Steel Corporation, 143, 
164-166, 185, 19 1 
Bethmann-HoUweg, 275-276 
Bidermann, Jacques, 206 
Birdwood, 50 

Bismarck, 41-44, 98-100, 103, 126, 
262-264, 266, 267 
Bittenfeld, 43 

Bleichroder, Gerson, 97-100, 104, 
262, 263 

Bleichroder, Samuel, 97 
Bliicher, 40 
Bofors, 192, 288 
Briand, Aristide, 190 
Burton, Theodore, 287 

Cane, Fascino, 21 
Carjaval, 199 

Carnegie, Andrew, 221, 224 
Cartier, Jacques, 12 
Cato of Utica, i 
Cavour, 95, 262 
Charles V, Emperor, 13, 66 
Chaulnes, Due de, Admiral of 
France, 17 

Churchill, Lady Sarah, 30 
Cleveland, Duchess of, 29 
Coeur, Jacques, 63, 64, 116 
Coileoni, 2 1 

Columbus, II 

Cook, John Mason, 226, 227 
Cook, Thomas, 226, 227 
Coronado, Vasquez de, 12 
Cortes, Hernando, 12-13 
Coulaincourt, 38 
Cousin, Jacques- Antoine, 206 
Coventry Ordnance Works, 150, 

Crassus, 2, 4 

Davison, Henry P., 237 
Davout, 37 

d’Espagnac, Fabbe, 205 
Disraeli, 262 

Dombrovski, General, 37 
Drake, Francis, 16 
Duguay-Trouin, 18-20, 46 
Duisberg, Carl, 170 
Dumouriez, General, 205 
Du Pont, E. I., 136, 137 
Du Pont’s, 137, 1 66- 1 68 
Duprez, 214 

Durant, William C., 168, 280 
Dutch East India Company, 16 

Electric Boat Co., 186, 187 
Elizabeth, Queen, 7, 16, n6 
EUerman, John, 227, 232 
Ephraim and Itzig, bankers, 72, 73 
Eugene, Prince, 29, 34 

Falckenstein, 43 
Farquhar, A, B., 223 
Favre, Jules, 265 
Flandin, 289 
Fleury, Cardinal, 203 
Flynn, John J., 299 
Fould, Achille, 96 
Fournier, Achille, 183-184 
Frederick the Great, 34, 72, 73 
Fugger, Jacob, 64-67, 116 
Fuggers, The, 67-68, 10 1 

Giesche, Georg von, 116 
Gliickstadt, 233, 234 
Gradis family. The, 204, 205 



Haig, 50 
Hardenberg, 40 
Harries, 83, 84 
Henckel, Lazarus, 10 1 
Henckel von Donnersmark, Count 
Guido, 1 00-103 

Hesse-Cassel, William IX, Land- 
grave of, 75-81 
Heymann, Emil, 266 
Hindenburg, 50-51 
Hider, 51 

Holstein, Baron von, 266-269 
Hoover, President, 189, 292, 293 
Hope, Henry, 213, 214, 216 
Hotchkiss arms factory, 156, 157 
Hotchkiss, Benjamin B., 136 
Hugenberg, 51, 189 

I. G. Farbenindustrie, 168, 169 
Ilva’s, 158, 176 

Imperial Chemical Industries Ltd., 

Japan Steel Works, 144 
Jellicoe, 50 
Julius II, Pope, 65 
Julius Caesar, 1-4 

K^llog, 189 
King, Mackenzie, 288 
Kitchener, 140 
Kokovtsov, 1 06 
Kroller, August, 234, 235 
Krupp, Alfred, 119, 120, 124-133, 
142, 145, 146 
Krupp, Bertha, 15 1 
Krupp, Friedrich, 119 
Krupp, Friedrich Alfred, 142 
Krupp von Bohlen und Halbach, 

Krupp’s, 119, 142, 143, 146, 151, 
I 52 > i 54 > I 55 j *74-176= *92. 288 
Kuhlmann, fitablissements, 171 

Laffitte, Jacques, 39, 86, 90, 251, 
252, 254, 256 
Lagrange, 79 
Lannes, 37 

Law, John, 57, 70, 202, 203 

Leboeuf, Marshal, 128 
Lef^vre, 36 

Livermore, Jesse L., 273, 274, 279 
Lloyd George, 50, 160, 231, 238, 
240, 276 

Loewe & Co., 148, 155 
Louis XI, 201 
Louvois, 201 
Lucullus, 2 

Marlborough, 28-34, 200 
Marx-Berr, 206 
Massena, 35, 37, 38 
Maxim, Hiram, 14 1, 142 
Medicis, The, 62, 63 
Medina, Salomon de, 200 
Melchett, Lord, 171 
Mendelssohn, Berlin banker, 105 
Mitsubishi, 192 
Mitsui, 192 

Mollien, 36, 83, 89, 249 
Moltke, 43 j 267 
Montecuccoli, General, 56 
Montespan, Madame de, 16 
Montezuma, 12 

Morgan, John Pierpont, Junior, 
61, 108-113, 162, 237-240, 243, 

Morgan, John Pierpont, Senior, 
105, 139, 220, 227 
Mortier, 37 
Mulliner, 150 
Murat, 38 
Mussolini, 177, 291 

Napoleon I, 35-40, 78-80, 83, 
85-91, 207, 21 1, 212, 2i4-iSi6, 
253, 260, 299 

Napoleon HI, 41, 124, 125, 263 
Neitzlin, 105, 106 
Ney, 37 

Nikossie von Landeck, Lucretia, 23 
Nobel, Alfred, 124, 125, 192 
Nordenfeldt, T. V., 141 
Nye, Senator, 296 

Ouvrard, Gabriel-Julien, 85-91, 
207-219, 252, 255-257 


Pabst, 190 

Paris, The brothers, 200-204 
70, 71 

PatiM," 3 ^ ' 

Pereire, Banking house of, 96 
Perregaux, 89, 2^1 
Perrone, The brothers, 158, 159, 177 
Peruzzi, Banking Souse of, 61 
Peyronnet, Countie, 252, 254, 256 
Pizarro, Francisc^ 12-15 
Pizarro, Gonzal^S, 15 
Plumer, 50 
Pompey, 2 
Poree, Alain, 20 
Potemkin, General, 34 
Poutiloff arms factory, 143, 144, 
148, I 72-1 73 
Privateering, 15-20 

Raskob, John J., 167 
Regnier, 250 

Remington, 135, 138, 139 
Robertson, 50 

Rockefeller, John D., 221, 222 
Roon, 43, 99, 126, 129 
Roosevelt, President, 293-296 
Rothschild, Baron Alphonse, 100 
Rothschild, James, 83, 91-93, 256 
Rothschild, Meyer Amschel, 76-81 
Rothschild, Nathan, 81-85, 252- 

Rothschilds, The, 59, 74, 84, 85, 
87, 88, 91-98, 104, 252-257, 261 
Ruggiero, 57 

Sax-m, Prince, 149 
Schleicher, 51 

Schneider, The brothers Frangois- 
Adolphe and Joseph - Eugene, 
121-123, 132-134 
Schneider’s, 1 32-1 34, 148, 156, 
173, 178, 182-184 
Schwab, Chas. M., 165 
Schomburg, Duke of, 29 
Scott, T. A., 221, 224 
S^guin, Armand, 206, 213, 217 

Seilliere, Banking house of, 122, 

Sestroreck, Arms factory at, 1 1 7 
Shearer, William B., 189 
Skoda, E., 144 
Skoda, Karl, 144, 173 
Skoda’s, 144, 148, 155, 173, 174, 
187, 192 

Steinhart, 47-48 
Steimnetz, 43 
Soto, Hermando de, 12 
Soult, 37 

Spandau, Armament works of, 1 20 
Stinnes, Hugo, 236 
Stumms, The, 1 1 6 

Talleyrand, 38, 257-261 
Thurzo, Counts, 10 1 
Thyssen, 189 

Tirpitz, Admiral von, 149, 151 
Toula, Arms factory of, 117 

U.S. Steel Corporation, 162- 
164, 184, 240 

Vanderbilt, Cornelius, 224, 225 
Vickers’, 118, 143, 144, 147, 148, 
160, 161, 178-181 
Vickers-Armstrong Ltd., 180, 181, 

Voltaire, 203, 257 

Wallenstein, 22-28 
Wanamaker, John, 222 
Warren, Prof. Charles, 295 
Wellington, 39-41, 82 
Welser, Banking house of, 68 
Wendel, Jean Martin, 116 
William the Conqueror, 6-7 
William II, Kaiser, 49, 143 
Wilson, President, 109, 276, 283, 

Witte, Count, 105, 106 

Zaharoff, Basil, 141, 161, 181, 

Zayonscheck, General, 37